<PAGE>

                                                                 EXECUTION COPY

-------------------------------------------------------------------------------

                         INSURANCE AND INDEMNITY AGREEMENT
                                          
                                          
                                       among
                                          
                                          
                         FINANCIAL SECURITY ASSURANCE INC.,
                                          
                                          
                   ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1999-A,
                                          
                                          
                         ARCADIA RECEIVABLES FINANCE CORP.
                                          
                                          
                                        and
                                          
                                          
                               ARCADIA FINANCIAL LTD.
                                          
                                          
                             Dated as of March 17, 1999

-------------------------------------------------------------------------------

                    Arcadia Automobile Receivables Trust, 1999-A
                                          
                                          
        $ 60,000,000 -- 4.960% Class A-1 Automobile Receivables-Backed Notes
                                          
                                          
       $ 153,000,000 -- 5.373% Class A-2 Automobile Receivables-Backed Notes
                                          
                                          
        $ 65,000,000 -- 5.750% Class A-3 Automobile Receivables-Backed Notes
                                          
                                          
       $ 105,000,000 -- 5.940% Class A-4 Automobile Receivables-Backed Notes
                                          
                                          
        $ 167,000,000 -- 6.120% Class A-5 Automobile Receivables-Backed Notes
                                          
-------------------------------------------------------------------------------

<PAGE>


                                 TABLE OF CONTENTS

<TABLE>

                                                                                 Page
<S>                                                                              <C>
ARTICLE I.     DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

     Section 1.01   Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .2

ARTICLE II.    REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . . . . .7

     Section 2.01   Representations and Warranties of the Trust. . . . . . . . . . .7
     Section 2.02   Affirmative Covenants of the Trust . . . . . . . . . . . . . . 10
     Section 2.03   Negative Covenants of the Trust. . . . . . . . . . . . . . . . 15
     Section 2.04   Representations and Warranties of Arcadia Financial and 
                    the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 17
     Section 2.05   Affirmative Covenants of Arcadia Financial and 
                    the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 22
     Section 2.06   Negative Covenants of Arcadia Financial and the Seller . . . . 26
     Section 2.07   Representations and Warranties of Arcadia Financial. . . . . . 28
     Section 2.08   Affirmative Covenants of Arcadia Financial . . . . . . . . . . 30
     Section 2.09   Negative Covenants of Arcadia Financial. . . . . . . . . . . . 34

ARTICLE III.   THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION . . . . . . . . . . 36

     Section 3.01   Conditions Precedent to Issuance of the Note Policy. . . . . . 36
     Section 3.02   Payment of Fees and Premium. . . . . . . . . . . . . . . . . . 40
     Section 3.03   Reimbursement and Additional Payment Obligation. . . . . . . . 41
     Section 3.04   Certain Obligations Not Recourse to Arcadia Financial;
                    Recourse to Trust Property . . . . . . . . . . . . . . . . . . 42
     Section 3.05   Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 43
     Section 3.06   Payment Procedure. . . . . . . . . . . . . . . . . . . . . . . 44
     Section 3.07   Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . 45

ARTICLE IV.    FURTHER AGREEMENTS; MISCELLANEOUS . . . . . . . . . . . . . . . . . 45

     Section 4.01   Effective Date: Term of Agreement. . . . . . . . . . . . . . . 45
     Section 4.02   Further Assurances and Corrective Instruments. . . . . . . . . 45
     Section 4.03   Obligations Absolute.. . . . . . . . . . . . . . . . . . . . . 45
     Section 4.04   Assignments; Reinsurance; Third-Party Rights.. . . . . . . . . 47
     Section 4.05   Liability of Financial Security. . . . . . . . . . . . . . . . 48

ARTICLE V.     EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . 48

     Section 5.01   Events of Default. . . . . . . . . . . . . . . . . . . . . . . 48
     Section 5.02   Remedies; Waivers. . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE VI.    MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

     Section 6.01   Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . 51
     Section 6.02   Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
     Section 6.03   Severability . . . . . . . . . . . . . . . . . . . . . . . . . 53


<PAGE>


     Section 6.04   Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 53
     Section 6.05   Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . 53
     Section 6.06   Consent of Financial Security. . . . . . . . . . . . . . . . . 54
     Section 6.07   Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 54
     Section 6.08   Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
     Section 6.09   Trial by Jury Waived . . . . . . . . . . . . . . . . . . . . . 54
     Section 6.10   Limited Liability. . . . . . . . . . . . . . . . . . . . . . . 55
     Section 6.11   Limited Liability of Wilmington Trust Company. . . . . . . . . 55
     Section 6.12   Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 55

</TABLE>

Schedule 1








                                          ii

<PAGE>


                          INSURANCE AND INDEMNITY AGREEMENT

          INSURANCE AND INDEMNITY AGREEMENT dated as of March 17, 1999, among
FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
("Financial Security"), ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1999-A, a Delaware
business trust (the "Trust"), ARCADIA RECEIVABLES FINANCE CORP., a Delaware
corporation (the "Seller"), and ARCADIA FINANCIAL LTD., a Minnesota corporation
(when referred to individually hereunder, "Arcadia Financial", when referred to
as servicer under the Sale and Servicing Agreement referred to below, the
"Servicer").

                               INTRODUCTORY STATEMENTS

          1.   The Seller is the owner of the Receivables.  The Seller proposes
to sell to the Trust all of its right, title and interest in and to the
Receivables and certain other property pursuant to the Sale and Servicing
Agreement.  The Trust will issue Notes pursuant to the Indenture.

          2.   Each Note will be secured by the Indenture Property.  The Trust
has requested that Financial Security issue a financial guaranty insurance
policy guarantying respectively certain distributions of interest and principal
on the Notes on each Distribution Date (including any such distributions
subsequently avoided as a preference under applicable bankruptcy law) upon the
terms, and subject to the conditions, provided herein.

          3.   Arcadia Financial and the Seller have previously entered into and
may in the future enter into one or more pooling and servicing agreements or
sale and servicing agreements with a trust and Seller has previously entered
into an Amended and Restated Sale and Servicing Agreement, dated as of July 21,
1998, among the Seller, Arcadia Automobile Receivables Warehouse Trust, Arcadia
Financial, Bank of America National Trust and Savings Association, Morgan
Guaranty Trust Company of New York, Norwest Bank Minnesota, National Association
and Arcadia Receivables Conduit Corp., in each case, pursuant to which the
Seller sold or will sell all of its right, title and interest in and to
receivables and the other trust property and in connection therewith Financial
Security has and may in the future issue additional policies with respect to
certain guaranteed distributions on the corresponding certificates, the
corresponding notes or both.

          4.   The parties hereto desire to specify the conditions precedent to
the issuance of the Note Policy by Financial Security, the payment of premium in
respect of the Note Policy, the indemnity and reimbursement to be provided to
Financial Security in respect of amounts paid by Financial Security under the
Note Policy or otherwise and certain other matters.


<PAGE>


          In consideration of the premises and of the agreements herein
contained, Financial Security, the Trust, Arcadia Financial, individually and as
Servicer, and the Seller hereby agree as follows:

                                      ARTICLE I.

                                     DEFINITIONS

          Section 1.01   DEFINITIONS.  All words and phrases defined in the
Trust Agreement, the Sale and Servicing Agreement or in the Spread Account
Agreement shall have the same meanings in this Agreement.  Unless otherwise
specified, if a word or phrase defined in the Trust Agreement, the Sale and
Servicing Agreement or in the Spread Account Agreement can be applied with
respect to one or more Series, such a word or phrase shall be used herein as
applied to Series 1999-A. In addition, the following words and phrases shall
have the following respective meanings:

          "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning provided in
Section 412 of the Code and Section 302 of ERISA, whether or not waived.

          "AGREEMENT" means this Insurance and Indemnity Agreement, as the same
may be amended, modified or supplemented from time to time.

          "AUTHORIZED OFFICER" means, with respect to a corporation, the
president, the chief financial officer or any vice president.

          "CODE" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.

          "COMMISSION" means the Securities and Exchange Commission.

          "COMMONLY CONTROLLED ENTITY" means with respect to the Trust, the
Seller or Arcadia Financial, as the case may be, each entity, whether or not
incorporated, which is affiliated with the Trust, the Seller or Arcadia
Financial, as the case may be, pursuant to Section 414(b), (c), (m) or (o) of
the Code.

          "DEFAULT" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.

          "ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

          "EVENT OF DEFAULT" means any event of default specified in Section
5.01 of this Agreement.


                                         2

<PAGE>

          "EXPIRATION DATE" means, with respect to the Note Policy, the final
date of the Term of such Note Policy, as specified therein.

          "FINANCIAL SECURITY" means Financial Security Assurance Inc., a New
York stock insurance company, its successors and assigns.

          "FINANCIAL STATEMENTS" means with respect to Arcadia Financial the
audited consolidated balance sheets as of December 31, 1997, December 31, 1996,
and December 31, 1995 and the related audited consolidated statements of income,
retained earnings and cash flows for the 12-month periods then ended and the
notes thereto.

          "FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant to
the terms of the Note Policy.

          "INDENTURE COLLATERAL AGENT" means initially, Norwest Bank Minnesota,
National Association, in its capacity as collateral agent on behalf of Financial
Security and the Indenture Trustee on behalf of the Noteholders pursuant to the
Indenture, its successor in interest and any successor Indenture Collateral
Agent under the Indenture.

          "INDENTURE PROPERTY" means the property pledged to the Indenture
Collateral Agent on behalf of Financial Security and the Indenture Trustee on
behalf of the Noteholders pursuant to the Indenture.

          "INSURANCE AGREEMENT INDENTURE CROSS DEFAULT" means an Event of
Default specified in clause (a), (f), (g), (h) or (i)  of Section 5.01.

          "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

          "IRS" means the Internal Revenue Service.

          "LATE PAYMENT RATE" means the greater of (i) a per annum rate equal
to 3 percent in excess of Financial Security's cost of funds, determined on a
monthly basis, or (ii) a per annum rate equal to 3 percent in excess of the
arithmetic average of the prime or base lending rates publicly announced by The
Chase Manhattan Bank, N.A. (New York, New York) and Citibank, N.A. (New York,
New York), as in effect on the last day of the month for which interest is being
computed, but, in either case, in no event greater than the maximum rate
permitted by law.

          "LIEN" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind; or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of 


                                      3
<PAGE>


subjecting or making available the same for the payment of debt or 
performance of any other obligation in priority to the payment of the 
general, unsecured creditors of such Person.

          "MATERIAL ADVERSE CHANGE" means, in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations,
or properties of such Person and its Subsidiaries taken as a whole, (ii) the
ability of such Person to perform its obligations under any of the Transaction
Documents to which it is a party or (iii) the ability of Financial Security or
the Trust to realize the benefits or security afforded under the Transaction
Documents.

          "MULTIEMPLOYER PLAN" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.

          "NOTE POLICY" means the financial guaranty insurance policy, including
any endorsements thereto, issued by Financial Security with respect to the
Notes, substantially in the form attached as Exhibit A hereto.

          "NOTICE OF CLAIM" means the Notice of Claim and Certificate in the
form attached as Exhibit A to Endorsement No. 1 to the Note Policy.

          "OTHER TRUST PROPERTY" means the property conveyed by the Seller to
the Trust pursuant to the Sale and Servicing Agreement and any Subsequent
Transfer Agreement.

          "PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.

          "PLAN" means any pension plan (other than a Multiemployer Plan)
covered by Title IV of ERISA, which is maintained by a Commonly Controlled
Entity or in respect of which a Commonly Controlled Entity has liability.

          "PORTFOLIO PERFORMANCE EVENT OF DEFAULT" means an Event of Default
specified in clause (j), (k), or (l) of Section 5.01.

          "PREMIUM" means the premium payable in accordance with Section 3.02 of
this Agreement.

          "PREMIUM LETTER" means the side letter between Financial Security and
Arcadia Financial dated the date hereof in respect of the premium payable by
Arcadia Financial in consideration of the issuance of the Note Policy.

          "PREMIUM SUPPLEMENT" means a non-refundable premium, in addition to
the premium payable in accordance with Section 3.02 of this Agreement, payable
by Arcadia Financial to Financial Security in monthly installments commencing on
the first Distribution 


                                        4
<PAGE>

Date following the Premium Supplement Commencement Date and on each 
Distribution Date thereafter, payable in accordance with the terms of the 
Premium Letter.

          "PREMIUM SUPPLEMENT COMMENCEMENT DATE" means the date of occurrence of
an Event of Default in respect of which the Premium Supplement shall have been
declared due and payable in accordance with Section 5.02 of this Agreement.

          "PREVIOUS SERIES TRANSACTION DOCUMENTS" means the transaction
documents as defined in each of the insurance and indemnity agreements related
to Olympic Automobile Receivables Trust, 1993-A, Olympic Automobile Receivables
Trust, 1993-B, Olympic Automobile Receivables Trust, 1993-C, Olympic Automobile
Receivables Trust, 1993-D, Olympic Automobile Receivables Trust, 1994-A, Olympic
Automobile Receivables Trust, 1994-B, Olympic Automobile Receivables Trust,
1995-A, Olympic Automobile Receivables Trust, 1995-B, Olympic Automobile
Receivables Trust, 1995-C, Olympic Automobile Receivables Trust, 1995-D, Olympic
Automobile Receivables Trust, 1995-E, Olympic Automobile Receivables Trust,
1996-A, Olympic Automobile Receivables Trust, 1996-B, Olympic Automobile
Receivables Trust, 1996-C, Olympic Automobile Receivables Trust, 1996-D, Olympic
Automobile Receivables Trust, 1997-A, Arcadia Automobile Receivables Trust,
1997-B, Arcadia Automobile Receivables Trust 1997-C, Arcadia Automobile
Receivables Trust, 1997-D, Arcadia Automobile Receivables Trust, 1998-A, Arcadia
Automobile Receivables Trust, 1998-B, Arcadia Automobile Receivables Trust,
1998-C, Arcadia Automobile Receivables Trust, 1998-D, Arcadia Automobile
Receivables Trust, 1998-E and the Warehousing Notes.

          "PROSPECTUS" has the meaning set forth in Section 2.04(o) of this
Agreement.

          "RELATED DOCUMENTS" means the Transaction Documents except for the
Sale and Servicing Agreement.

          "REGISTRATION STATEMENT" has the meaning set forth in Section 2.04(o)
of this Agreement.

          "REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.

          "RESTRICTIONS ON TRANSFERABILITY" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to sell, assign, transfer or
otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.

          "SALE AND SERVICING AGREEMENT" means the Sale and Servicing Agreement
dated as of March 1, 1999 among the Seller, Arcadia Financial, in its individual
capacity and as Servicer, the Back-up Servicer and the Trust pursuant to which
the Initial Receivables are to be sold, serviced and administered, as the same
may be amended from time to time.


                                        5
<PAGE>


          "SECURITIES ACT" means the Securities Act of 1933, including, unless
the context otherwise requires, the rules and regulations thereunder, as amended
from time to time.

          "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

          "SENIOR NOTE INDENTURE" means the Indenture dated as of March 12, 1997
between Arcadia Financial (f/k/a Olympic Financial Ltd.) and Norwest Bank
Minnesota, National Association, as amended or supplemented (including that
First Supplemental Indenture dated as of March 12, 1997 and that Second
Supplemental Indenture dated as of October 8, 1997 (each, a "Supplemental
Indenture")), relating to $375,000,000 principal amount of Arcadia Financial's
currently outstanding 11 1/2% Senior Notes due 2007.

          "SERIES 1999-A" means the Series of Notes issued on the date hereof
pursuant to the Indenture.

          "SERIES OF NOTES" or "SERIES" means Series 1999-A or any, or as the
context may require, all, additional series of notes issued as described in
paragraph 3 of the Introductory Statements hereto.

          "SERVICER TERMINATION SIDE LETTER" means the letter from Financial
Security to the Servicer dated as of March 17, 1999, with regard to the renewal
of the term of the Servicer.

          "SPREAD ACCOUNT AGREEMENT" means the Spread Account Agreement, dated
as of March 25, 1993, as amended and restated as of November 19, 1998 and
supplemented in accordance with the terms thereof, among Arcadia Financial, the
Seller, Financial Security, the Indenture Trustee and the Collateral Agent.

          "STOCK PLEDGE AGREEMENT" means the Third Amended and Restated Stock
Pledge Agreement, dated as of December 3, 1996, as amended and restated, among
Financial Security, Arcadia Financial, and the Collateral Agent, as the same may
be amended from time to time.

          "SUBSIDIARY" means, with respect to any Person, any corporation of
which a majority of the outstanding shares of capital stock having ordinary
voting power for the election of directors is at the time owned by such Person
directly or through one or more Subsidiaries.

          "TERM OF THE NOTE POLICY" means, with respect to the Note Policy, the
meaning provided therein.

          "TERM OF THIS AGREEMENT" shall be determined as provided in Section
4.01 of this Agreement.

          "TRANSACTION" means the transactions contemplated by the Transaction
Documents, including the transactions described in the Registration Statement.


                                           6
<PAGE>


          "TRANSACTION DOCUMENTS" means this Agreement, the Sale and Servicing
Agreement, the Trust Agreement, the Certificate of Trust, the Indenture, the
Underwriting Agreement, the Purchase Agreement, the Premium Letter, the Stock
Pledge Agreement, the Lockbox Agreement, the Depository Agreements, the
Custodian Agreement, the Servicer Termination Side Letter, the Spread Account
Agreement and the Administration Agreement.

          "TRUST AGREEMENT" means the Trust Agreement, dated as of March 1,
1999, among the Seller, Financial Security and Wilmington Trust Company, as
Owner Trustee.

          "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

          "UNDERFUNDED PLAN" means any Plan that has an Underfunding.

          "UNDERFUNDING" means, with respect to any Plan, the excess, if any, of
(a) the present value of all benefits under the Plan (based on the assumptions
used to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.

          "UNDERWRITERS" means Chase Securities Inc., Credit Suisse First Boston
Corporation, J.P. Morgan Securities Inc. and NationsBanc Montgomery Securities
LLC.

          "UNDERWRITING AGREEMENT" means the Pricing Agreement, dated March 11,
1999, among Arcadia Financial and the Seller and the Underwriters.

          "WAREHOUSING NOTES" means the Floating Rate Variable Funding Notes
issued pursuant to the Amended and Restated Indenture dated as of July 21, 1998,
between Arcadia Automobile Receivables Warehouse Trust, as issuer, and Norwest
Bank Minnesota, National Association, as trustee.

                                    ARTICLE II.
                                          
                     REPRESENTATIONS, WARRANTIES AND COVENANTS

          Section 2.01   REPRESENTATIONS AND WARRANTIES OF THE TRUST.  The Trust
represents, warrants and covenants, as of the date hereof and as of the Closing
Date, as follows:

          (a)  DUE ORGANIZATION AND QUALIFICATION.  The Trust is duly formed and
validly existing as a Delaware statutory business trust and is in good standing
under the laws of the State of Delaware, with power and authority to own its
properties and to conduct its business.  The Trust is duly qualified to do
business, is in good standing and has obtained all necessary licenses, permits,
charters, registrations and approvals (together, "approvals") necessary for the
conduct of its business as described in the Prospectus and the performance of
its obligations under the Transaction Documents, in each jurisdiction in which
the failure to be so qualified or to obtain 


                                         7

<PAGE>

such approvals would render the Receivables in such jurisdiction or any 
Transaction Document unenforceable in any respect or would otherwise have a 
material adverse effect upon the Transaction.  
 
     (b)  POWER AND AUTHORITY.  The Trust has all necessary trust power and 
authority to conduct its business as described in the Prospectus, to execute, 
deliver and perform its obligations under this Agreement and each other 
Transaction Document to which the Trust is a party and to carry out the terms 
of each such agreement, and has full power and authority to issue the Notes 
and pledge and assign its assets pursuant to the Indenture and has duly 
authorized the issuance of the Notes and the assignment of its assets by all 
necessary trust proceedings.

     (c)  DUE AUTHORIZATION.  The execution, delivery and performance of this 
Agreement and each other Transaction Document to which the Trust is a party 
has been duly authorized by all necessary action on the part of the Trust and 
does not require any additional approvals or consents or other action by or 
any notice to or filing with any Person by or on behalf of the Trust, 
including, without limitation, any governmental entity.

     (d)  NONCONTRAVENTION.  Neither the execution and delivery of this 
Agreement and each other Transaction Document to which the Trust is a party, 
the consummation of the Transaction nor the satisfaction of the terms and 
conditions of this Agreement and each other Transaction Document to which the 
Trust is a party,

          (i)     conflicts with or results in any breach or violation of
     any provision of the Certificate of Trust or the Trust Agreement or any
     law, rule, regulation, order, writ, judgment, injunction, decree,
     determination or award currently in effect having applicability to the
     Trust or any of its properties, including regulations issued by an
     administrative agency or other governmental authority having supervisory
     powers over the Trust,

          (ii)    constitutes a default by the Trust under or a breach of
     any provision of any loan agreement, mortgage, indenture or other agreement
     or instrument to which the Trust is a party or by which it or any of its
     properties is or may be bound or affected, or

          (iii)   results in or requires the creation of any Lien upon or
     in respect of any of the Trust's assets except as otherwise expressly
     contemplated by the Transaction Documents.

     (e)  PENDING LITIGATION OR OTHER PROCEEDING.  There is no action,
proceeding or investigation pending, or, to the Trust's best knowledge,
threatened, before any court, regulatory body, administrative agency, arbitrator
or governmental agency or instrumentality having jurisdiction over the Trust or
its properties: (A) asserting the invalidity of this Agreement or any other
Transaction Document to which the Trust is a party, (B) seeking to prevent the
issuance of the Notes or the consummation of the Transaction, (C) seeking any
determination or ruling that might materially and adversely affect the validity
or enforceability of this Agreement or any other Transaction Document to which
the Trust is a party, (D) which might result in a Material


                                       8
<PAGE>

Adverse Change with respect to the Trust or (E) which might adversely affect 
the federal or state tax attributes of the Notes or the Trust.

     (f)  VALID AND BINDING OBLIGATIONS.  Each of the Transaction Documents
to which the Trust is a party, when executed and delivered by the Trust, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Trust enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equitable principles.  The
Notes, when executed, authenticated and delivered in accordance with the
Indenture, will be entitled to the benefits of the Indenture and will constitute
legal, valid and binding obligations of the Trust, enforceable in accordance
with their terms.

     (g)  NO CONSENTS.  No consent, license, approval or authorization from, 
or registration, filing or declaration with, any regulatory body, 
administrative agency, or other governmental instrumentality, nor any 
consent, approval, waiver or notification of any creditor, lessor or other 
non-governmental person, is required in connection with the execution, 
delivery and performance by the Trust of this Agreement or of any other 
Transaction Document to which the Trust is a party, except (in each case) 
such as have been obtained and are in full force and effect.

     (h)  COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy 
employed or proposed to be employed by the Trust in the conduct of its 
business violates any law, regulation, judgment, agreement, order or decree 
applicable to the Trust which, if enforced, would result in a Material 
Adverse Change with respect to the Trust.

     (i)  ERISA.  The Trust does not maintain or contribute to, or have any
obligation to maintain or contribute to, any Plan.  The Trust is not subject to
any of the provisions of ERISA.

     (j)  COLLATERAL.  On the Closing Date, and on each Subsequent Transfer
Date, the Trust will have good and marketable title to each item of Other Trust
Property conveyed on such date and will own each such item free and clear of any
Lien (other than Liens contemplated under the Indenture) or any equity or
participation interest of any other Person.

     (k)  PERFECTION OF LIENS AND SECURITY INTEREST.  On the Closing Date, 
the Lien and security interest in favor of the Indenture Collateral Agent 
with respect to Indenture Property will be perfected by the filing of 
financing statements on Form UCC-1 in each jurisdiction where such recording 
or filing is necessary for the perfection thereof, the delivery of the 
Receivable Files for the Receivables to the Custodian, and the establishment 
of the Collection Account, the Subcollection Account, the Lockbox Account, 
the Pre-Funding Account, the Reserve Account and the Note Distribution 
Account in accordance with the provisions of the Transaction Documents, and 
no other filings in any jurisdiction or any other actions (except as 
expressly provided herein) are necessary to perfect the Collateral Agent's 
Lien on and security interest in the Collateral as against any third parties.

                                       9
<PAGE>


     (l)  SECURITY INTEREST IN FUNDS AND INVESTMENTS.  Assuming the retention 
of funds in the Accounts and the acquisition of Eligible Investments in 
accordance with the Transaction Documents, such funds and Eligible 
Investments will be subject to a valid and perfected, first priority security 
interest in favor of the Collateral Agent on behalf of the Indenture Trustee 
(on behalf of the Noteholders) and Financial Security.

     (m)  COMPLIANCE WITH INVESTMENT COMPANY ACT.  The Trust is not required 
to be registered as an "investment company" under the Investment Company Act.

     (n)  INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES.  The 
representations and warranties of the Trust set forth in each Transaction 
Document are (in each case) true and correct as if set forth herein.

     (o)  SPECIAL PURPOSE ENTITY.

          (i)     The capital of the Trust is adequate for the business
     and undertakings of the Trust.

          (ii)    Except as contemplated by the Transaction Documents,
     the Trust is not engaged in any business transactions with Arcadia
     Financial, the Seller or any Affiliate of either of them.

          (iii)   The Trust's funds and assets are not, and will not be,
     commingled with the funds of any other Person, except as provided in the
     Transaction Documents.

     (p)  SOLVENCY; FRAUDULENT CONVEYANCE.  The Trust is solvent and will not
be rendered insolvent by the Transaction or by the performance of its
obligations under the Transaction Documents and, after giving effect to such
Transaction, the Trust will not be left with an unreasonably small amount of
capital with which to engage in its business.  The Trust does not intend to 
incur, or believes that it has incurred, debts beyond its ability to pay such
debts as they mature.  The Trust does not contemplate the commencement of 
insolvency, bankruptcy, liquidation or consolidation proceedings or the 
appointment of a receiver, liquidator, conservator, trustee or similar 
official in respect of the Trust or any of its assets.

     Section 2.02   AFFIRMATIVE COVENANTS OF THE TRUST.  The Trust hereby 
agrees that during the Term of the Agreement, unless Financial Security shall 
otherwise expressly consent in writing:

     (a)  COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  The Trust will
comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it.  The Trust will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall have occurred and be continuing) Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of

                                       10
<PAGE>


Financial Security.  The Trust shall not take any action or fail to take any 
action that would interfere with the enforcement of any rights under this 
Agreement or the other Transaction Documents.

     (b)  FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.  The 
Trust shall keep or cause to be kept in reasonable detail books and records 
of account of the Trust's assets and business, which shall be furnished to 
Financial Security upon request.  The Trust shall furnish to Financial 
Security, simultaneously with the delivery of such documents to the Indenture 
Trustee or the Noteholders, as the case may be, copies of all reports, 
certificates, statements, financial statements or notices furnished to the 
Indenture Trustee or the Noteholders, as the case may be, pursuant to the 
Transaction Documents.

          (i)     ANNUAL FINANCIAL STATEMENTS.  As soon as available, and
     in any event within 90 days after the close of each fiscal year of the
     Trust, the audited balance sheets of the Trust as of the end of such fiscal
     year and the audited statements of income, changes in equityowners' equity
     and cash flows of the Trust for such fiscal year, all in reasonable detail
     and stating in comparative form the respective figures for the
     corresponding date and period in the preceding fiscal year, prepared in
     accordance with generally accepted accounting principles, consistently
     applied, and accompanied by the certificate of the Trust's independent
     accountants (who shall be acceptable to Financial Security) and by the
     certificate specified in Section 2.02(c) hereof.

          (ii)    QUARTERLY FINANCIAL STATEMENTS.  As soon as available,
     and in any event within 45 days after the close of each of the first three
     quarters of each fiscal year of the Trust, the unaudited balance sheets of
     the Trust as of the end of such quarter and the unaudited statements of
     income, changes in equityowners' equity and cash flows of the Trust for the
     portion of the fiscal year then ended, all in reasonable detail and stating
     in comparative form the respective figures for the corresponding date and
     period in the preceding fiscal year, prepared in accordance with generally
     accepted accounting principles consistently applied (subject to normal
     year-end adjustments), and accompanied by the certificate specified in
     Section 2.02(c) hereof.

          (iii)   ACCOUNTANTS' REPORTS.  Promptly upon receipt thereof,
     copies of any reports or comment letters submitted to the Trust by its
     independent accountants in connection with any examination of the financial
     statements of the Trust.

          (iv)    CERTAIN INFORMATION.  Not less than ten days prior to
     the date of filing with the IRS of any tax return or amendment thereto,
     copies of the proposed form of such return or amendment and, promptly after
     the filing or sending thereof, (i) copies of each tax return and amendment
     thereto that the Trust files with the IRS and (ii) copies of all financial
     statements, reports, and registration statements which the Trust files
     with, or delivers to, any federal government agency, authority or body
     which supervises the issuance of securities by the Trust.

          (v)     OTHER INFORMATION.  Promptly upon the request of Financial
     Security, copies of all schedules, financial statements or other similar 
     reports delivered to or by the

                                       11
<PAGE>



     Trust pursuant to the terms of this Agreement and the other Transaction
     Documents and such other data as Financial Security may reasonably request.

     (c)  COMPLIANCE CERTIFICATE.  The Trust shall deliver to Financial 
Security and, upon request, any Noteholder, concurrently with the delivery of 
the financial statements required pursuant to Section 2.02(b)(i) and (ii) 
hereof, a certificate signed by an Authorized Officer of the Administrator 
stating that:

          (i)     a review of the Trust's performance under the Transaction
     Documents during such period has been made under such officer's
     supervision;

          (ii)    to the best of such individual's knowledge following
     reasonable inquiry, no Default or Event of Default has occurred and is
     continuing or, if a Default or Event of Default has occurred and is
     continuing, specifying the nature thereof and, if the Trust has a right to
     cure pursuant to Section 5.01, stating in reasonable detail the steps, if
     any, being taken by the Trust to cure such Default or Event of Default or
     to otherwise comply with the terms of the agreement or agreements to which
     such Default or Event of Default relates; and

          (iii)   The financial reports submitted in accordance with
     Section 2.02(b)(i) or (ii) hereof, as applicable, are complete and
     correct in all material respects and present fairly the financial condition
     and results of operations of the Trust as of the dates and for the periods
     indicated, in accordance with generally accepted accounting principles
     consistently applied (subject as to interim statements to normal year-end
     adjustments).

     (d)  ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. The 
Trust shall, upon the request of Financial Security, permit Financial 
Security or its authorized agents (i) to inspect the books and records of the 
Trust as they may relate to the Notes, the Receivables and the Other Trust 
Property, the obligations of the Trust under the Transaction Documents, the 
Trust's business and the Transaction and (ii) to discuss the affairs, 
finances and accounts of the Trust with any of its personnel and 
representatives, including its Independent Accountants.  Such inspections and 
discussions shall be conducted during normal business hours and shall not 
unreasonably disrupt the business of the Trust.  The books and records of the 
Trust will be maintained at the address of the Trust designated herein for 
receipt of notices, unless the Trust shall otherwise advise the parties 
hereto in writing.

     (e)  NOTICE OF MATERIAL EVENTS.  The Trust shall promptly inform
Financial Security in writing of the occurrence of any of the following:

          (i)     the submission of any claim or the initiation of any
     legal process, litigation or administrative or judicial investigation
     against the Trust involving potential damages or penalties in an uninsured
     amount in excess of $100,000 in any one instance or $500,000 in the
     aggregate;

          (ii)    any change in the location of Trust's principal office
     or any change in the location of the Trust's books and records;

                                       12
<PAGE>



          (iii)   the occurrence of any Default or Event of Default;

          (iv)    the commencement or threat of any rule making or
     disciplinary proceedings or any proceedings instituted by or against the
     Trust in any federal, state or local court or before any governmental body
     or agency, or before any arbitration board, or the promulgation of any
     proceeding or any proposed or final rule which, if adversely determined,
     would result in a Material Adverse Change with respect to the Trust;

          (v)     the commencement of any proceedings by or against the
     Trust under any applicable bankruptcy, reorganization, liquidation,
     rehabilitation, insolvency or other similar law now or hereafter in effect
     or of any proceeding in which a receiver, liquidator, conservator, trustee
     or similar official shall have been, or may be, appointed or requested for
     the Trust or any of its assets;

          (vi)    the receipt of notice that (A) the Trust is being
     placed under regulatory supervision, (B) any license, permit, charter,
     registration or approval necessary for the conduct of the Trust's business
     is to be, or may be, suspended or revoked, or (C) the Trust is to cease and
     desist any practice, procedure or policy employed by the Trust in the
     conduct of its business, and such cessation may result in a Material
     Adverse Change with respect to the Trust; or

          (vii)   any other event, circumstance or condition that has
     resulted, or has a material possibility of resulting, in a Material Adverse
     Change in respect of the Trust.

     (f)  FURTHER ASSURANCES.  The Trust will file all necessary financing
statements, assignments or other instruments, and any amendments or continuation
statements relating thereto, necessary to be kept and filed in such manner and
in such places as may be required by law to preserve and protect fully the Lien
and security interest in, and all rights of the Indenture Collateral Agent with
respect to the Indenture Property, under the Indenture.  In addition, the Trust
shall, upon the request of Financial Security (so long as no Insurer Default has
occurred and is continuing), from time to time, execute, acknowledge and deliver
and, if necessary, file such further instruments and take such further action as
may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents to which the Trust is a party or to
protect the interest of the Indenture Collateral Agent in the Indenture Property
under the Indenture. The Trust agrees to cooperate with the Rating Agencies in
connection with any review of the Transaction which may be undertaken by the
Rating Agencies after the date hereof.

     (g)  MAINTENANCE OF LICENSES.  The Trust shall maintain all licenses,
permits, charters and registrations which are material to the performance by the
Trust of its obligations under this Agreement and each other Transaction
Document to which the Trust is a party or by which the Trust is bound.

     (h)  RETIREMENT OF NOTES.  The Trust shall, upon retirement of the 
Notes, furnish to Financial Security a notice of such retirement, and, upon 
such retirement and the  

                                       13
<PAGE>

expiration of the term of the Note Policy, surrender the Note Policy to 
Financial Security for cancellation.

     (i)  DISCLOSURE DOCUMENT.  Each Prospectus delivered with respect to
the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law.  In addition, each Prospectus delivered with respect to the
Notes which include financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:

          The New York State Insurance Department recognizes only
          statutory accounting practices for determining and reporting
          the financial condition and results of operations of an
          insurance company, for determining its solvency under the
          New York Insurance Law, and for determining whether its
          financial condition warrants the payment of a dividend to
          its stockholders.  No consideration is given by the New York
          State Insurance Department to financial statements prepared
          in accordance with generally accepted accounting principles
          in making such determinations.

     (j)  SPECIAL PURPOSE ENTITY.

          (i)     The Trust shall conduct its business solely in its own
     name through its duly authorized officers or agents so as not to mislead
     others as to the identity of the entity with which those others are
     concerned, and particularly will use its best efforts to avoid the
     appearance of conducting business on behalf of Arcadia Financial, the
     Seller, or any other Affiliates thereof or that the assets of the Trust are
     available to pay the creditors of Arcadia Financial, the Seller, or any
     other Affiliates thereof. Without limiting the generality of the foregoing,
     all oral and written communications, including, without limitation,
     letters, invoices, purchase orders, contracts, statements and loan
     applications, will be made solely in the name of the Trust.

          (ii)    The Trust shall maintain trust records and books of
     account separate from those of Arcadia Financial, the Seller and Affiliates
     of any of them.

          (iii)   The Trust shall obtain proper authorization from its
     equity owners of all trust action requiring such authorization, and copies
     of each such authorization and the minutes or other written summary of each
     such meeting shall be delivered to Financial Security within two weeks of
     such authorization or meeting as the case may be.

          (iv)    Although the organizational expenses of the Trust have
     been paid by Arcadia Financial, operating expenses and liabilities of the
     Trust shall be paid from its own funds.

                                       14
<PAGE>

          (v)     The annual financial statements of the Trust shall disclose 
     the effects of the Trust's transactions in accordance with generally 
     accepted accounting principles and shall disclose that the assets of the 
     Trust are not available to pay creditors of Arcadia Financial, the 
     Seller or any Affiliate of any of them.

          (vi)    The resolutions, agreements and other instruments of the 
     Trust underlying the transactions described in this Agreement and in the 
     other Transaction Documents shall be continuously maintained by the 
     Trust as official records of the Trust separately identified and held 
     apart from the records of Arcadia Financial, the Seller and each 
     Affiliate of any of them.

          (vii)   The Trust shall maintain an arm's-length relationship with 
     Arcadia Financial, the Seller and each Affiliate of any of them and will 
     not hold itself out as being liable for the debts of any such Person.

          (viii)  The Trust shall keep its assets and its liabilities wholly 
     separate from those of all other entities, including, but not limited 
     to, Arcadia Financial, the Seller and each Affiliate of any of them 
     except, in each case, as contemplated by the Transaction Documents.

     (k)  CLOSING DOCUMENTS.  The Trust shall provide or cause to be provided 
to Financial Security an executed original copy of each document executed in 
connection with the Transaction within 10 days after the Closing Date, except 
that the Seller shall cause a copy of the Trust Agreement, the Sale and 
Servicing Agreement, the Series 1999-A Supplement, the Indenture, the 
Administration Agreement and each Transaction Document to which Financial 
Security is a party to be provided to Financial Security on the Closing Date.

     (l)  TAX MATTERS.  The Trust will take all actions necessary to ensure 
that, for federal and state income tax purposes, the Trust is not taxable as 
an association (or publicly traded partnership) or taxable as a corporation.

     (m)  SECURITIES LAWS.  The Trust shall comply in all material respects 
with all applicable provisions of state and federal securities laws, 
including blue sky laws and the Securities Act, the Exchange Act and the 
Investment Company Act and all rules and regulations promulgated thereunder 
for which non-compliance would result in a Material Adverse Change with 
respect to the Trust.

     (n)  INCORPORATION OF COVENANTS.  The Trust agrees to comply with each 
of the covenants of the Trust set forth in the Transaction Documents and 
hereby incorporates such covenants by reference as if each were set forth 
herein.

     Section 2.03   NEGATIVE COVENANTS OF THE TRUST.  The Trust hereby agrees 
that during the Term of this Agreement, unless Financial Security shall 
otherwise give its prior express written consent:

                                       15
<PAGE>

     (a)  WAIVER; AMENDMENTS; ETC.  The Trust shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of the Certificate of Trust, the Trust
Agreement or any of the other Transaction Documents unless, if no Insurer
Default shall have occurred and be continuing, Financial Security shall have
consented thereto in writing.

     (b)  CREATION OF INDEBTEDNESS; GUARANTEES.  The Trust shall not create, 
incur, assume or suffer to exist any indebtedness or assume, guarantee, 
endorse or otherwise be or become directly or contingently liable for the 
obligations of any Person by, among other things, agreeing to purchase any 
obligation of another Person, agreeing to advance funds to such Person or 
causing or assisting such Person to maintain any amount of capital, except as 
contemplated by the Transaction Documents.

     (c)  SUBSIDIARIES.  The Trust shall not form, or cause to be formed,
any Subsidiaries.

     (d)  NO LIENS.  The Trust shall not, except as contemplated by the
Transaction Documents, create, incur, assume or suffer to exist any Lien of any
nature upon or with respect to any of its properties or assets, now owned or
hereafter acquired, or sign or file under the Uniform Commercial Code of any
jurisdiction any financing statement that names the Trust as debtor, or sign any
security agreement authorizing any secured party thereunder to file such a
financing statement.

     (e)  IMPAIRMENT OF RIGHTS.  The Trust shall not take any action, or
fail to take any action, if such action or failure to take action may interfere
with the enforcement of any rights under the Transaction Documents that are
material to the rights, benefits or obligations of the Indenture Trustee, the
Noteholders or Financial Security.

     (f)  NO MERGERS.  The Trust shall not consolidate with or merge into
any Person or transfer all or any material amount of its assets to any Person
(except as contemplated by the Transaction Documents) or liquidate or dissolve.

     (g)  ERISA.  The Trust shall not contribute or incur any obligation to
contribute to, or incur any liability in respect of, any Plan or Multiemployer
Plan.

     (h)  OTHER ACTIVITIES.  The Trust shall not:

          (i)     sell, pledge, transfer, exchange or otherwise dispose
     of any of its assets except as permitted under the Transaction Documents;
     or

          (ii)    engage in any business or activity except as
     contemplated by the Transaction Documents and as permitted by its
     Certificate of Trust.

     (i)  INSOLVENCY.  The Trust shall not commence any case, proceeding or 
other action (A) under any existing or future law of any jurisdiction, 
domestic or foreign, relating to bankruptcy, insolvency, reorganization or 
relief of debtors, seeking to have an order for relief

                                       16
<PAGE>

entered with respect to it, or seeking reorganization, arrangement, 
adjustment, winding-up, liquidation, dissolution, consolidation or other 
relief with respect to it or (B) seeking appointment of a receiver, trustee, 
custodian or other similar official for it or for all or any substantial part 
of its assets or make a general assignment for the benefit of its creditors. 
The Trust shall not take any action in furtherance of, or indicating the 
consent to, approval of, or acquiescence in any of the acts set forth above.  
The Trust shall not admit in writing its inability to pay its debts.

     (j)  SUCCESSOR PARTIES.  The Trust will not remove or replace, or
cause to be removed or replaced, the Servicer, the Indenture Trustee, the Owner
Trustee or the Administrator.

     Section 2.04   REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL AND
THE SELLER.  Each of Arcadia Financial and the Seller represent and warrant as
of the date hereof and as of the Closing Date, as follows:

     (a)  DUE ORGANIZATION AND QUALIFICATION.  The Seller is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware, with power and authority to own its properties and to conduct
its business.  The Seller is duly qualified to do business, is in good standing
and has obtained all necessary licenses, permits, charters, registrations and
approvals (together, "approvals") necessary for the conduct of its business as
currently conducted and as described in the Prospectus and the performance of
its obligations under the Transaction Documents, in each jurisdiction in which
the failure to be so qualified or to obtain such approvals would render the
Receivables in such jurisdiction or any Transaction Document unenforceable in
any respect or would otherwise have a material adverse effect upon the
Transaction.

     (b)  POWER AND AUTHORITY.  The Seller has all necessary corporate power 
and authority to conduct its business as currently conducted and as described 
in the Prospectus, to execute, deliver and perform its obligations under this 
Agreement and each other Transaction Document to which the Seller is a party 
and to carry out the terms of each such agreement, and has full power and 
authority to sell and assign the Receivables and the Other Trust Property to 
the Trust and has duly authorized such sale and assignment to the Trust by 
all necessary corporate action.

     (c)  DUE AUTHORIZATION.  The execution, delivery and performance of
this Agreement and each other Transaction Document to which the Seller is a
party has been duly authorized by all necessary corporate action on the part of
the Seller and does not require any additional approvals or consents or other
action by or any notice to or filing with any Person by or on behalf of the
Seller, including, without limitation, any governmental entity or the Seller's
stockholder.

     (d)  NONCONTRAVENTION.  None of the execution and delivery of this
Agreement and each other Transaction Document to which the Seller is a party,
the consummation of the 
                                       
                                       17

<PAGE>

Transaction or the satisfaction of the terms and conditions of this Agreement 
and each other Transaction Document to which the Seller is a party,

                 (i)     conflicts with or results in any breach or violation of
     any provision of the charter or bylaws of the Seller or any law, rule,
     regulation, order, writ, judgment, injunction, decree, determination or
     award currently in effect having applicability to the Seller or any of its
     properties, including regulations issued by an administrative agency or
     other governmental authority having supervisory powers over the Seller,

                 (ii)    constitutes a default by the Seller under or a breach
     of any provision of any loan agreement, mortgage, indenture or other
     agreement or instrument to which the Seller is a party or by which it or
     any of its properties is or may be bound or affected, or

                 (iii)   results in or requires the creation of any Lien upon or
     in respect of any of the Seller's assets except as otherwise expressly
     contemplated by the Transaction Documents.

          (e)  PENDING LITIGATION OR OTHER PROCEEDING.  There is no action,
proceeding or investigation pending, or, to the Seller's or Arcadia Financial's
best knowledge, threatened, before any court, regulatory body, administrative
agency, arbitrator or governmental agency or instrumentality having jurisdiction
over the Seller or its properties: (A) asserting the invalidity of this
Agreement or any other Transaction Document to which the Seller is a party,
(B) seeking to prevent the issuance of the Notes or the consummation of the
Transaction, (C) seeking any determination or ruling that might materially and
adversely affect the validity or enforceability of this Agreement or any other
Transaction Document to which the Seller is a party, (D) which might result in a
Material Adverse Change with respect to the Seller or (E) which might adversely
affect the federal or state tax attributes of the Notes or the Trust.

          (f)  VALID AND BINDING OBLIGATIONS.  Each of the Transaction Documents
to which the Seller is a party, when executed and delivered by the Seller, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Seller
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and general equitable principles. 
The Notes, when executed, authenticated and delivered in accordance with the
Indenture, will be entitled to the benefits of the Indenture and will constitute
legal, valid and binding obligations of the Trust, enforceable in accordance
with their terms.

          (g)  NO CONSENTS.  No consent, license, approval or authorization 
from, or registration, filing or declaration with, any regulatory body, 
administrative agency, or other governmental instrumentality, nor any 
consent, approval, waiver or notification of any creditor, lessor or other 
non-governmental person, is required in connection with the execution, 
delivery and performance by the Seller of this Agreement or of any other 
Transaction Document to which the Seller is a party, except (in each case) 
such as have been obtained and are in full force and effect.


                                      18

<PAGE>

          (h)  COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy
employed or proposed to be employed by the Seller in the conduct of its business
violates any law, regulation, judgment, agreement, order or decree applicable to
the Seller which, if enforced, would result in a Material Adverse Change with
respect to the Seller.

          (i)  GOOD TITLE; VALID TRANSFER; ABSENCE OF LIENS; SECURITY INTEREST. 
Immediately prior to the sale of the Initial Receivables and related Other Trust
Property to the Trust pursuant to the Sale and Servicing Agreement, the Seller
was the owner of, and had good and marketable title to, such property free and
clear of all Liens and Restrictions on Transferability, and had full right,
corporate power and lawful authority to assign, transfer and pledge the Initial
Receivables and the related Other Trust Property.  The Sale and Servicing
Agreement constitutes a valid sale, transfer and assignment of the Other Trust
Property to the Trust enforceable against creditors of and purchasers of the
Seller.  In the event that, in contravention of the intention of the parties,
the transfer of the Other Trust Property by the Seller to the Trust is
characterized as other than a sale, such transfer shall be characterized as a
secured financing, and the Trust shall have a valid and perfected first priority
security interest in the Other Trust Property free and clear of all Liens and
Restrictions on Transferability.

          (j)  ACCURACY OF INFORMATION.  Neither the Transaction Documents nor
any documents, agreements, instruments, schedules, certificates, statements,
cash flow schedules, number runs or other writings or data (collectively, the
"Documents") furnished to Financial Security by the Seller or Arcadia Financial
with respect to either of them, their Subsidiaries, the Receivables or the
Transaction contain any statement of a material fact which was untrue or
misleading in any material respect when made (except insofar as any Document was
corrected or superseded by a subsequent Document and Financial Security has not
detrimentally relied on the original Document). There is no fact known to the
Seller or Arcadia Financial which has a material possibility of causing a
Material Adverse Change with respect to the Seller or Arcadia Financial, or
which has a material possibility of impairing the value or marketability of the
Receivables, taken as a whole, or decreasing the probability that amounts due in
respect of the Receivables will be collected as due.  Since the furnishing of
the Transaction Documents, there has been no change or any development or event
involving a prospective change known to the Seller or Arcadia Financial which
would render any representation or warranty or other statement made by either of
them in any of the Transaction Documents untrue or misleading in a material
respect.

          (k)  COMPLIANCE WITH INVESTMENT COMPANY ACT.  The Seller is not
required to be registered as an "investment company" under the Investment
Company Act.

          (l)  INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES.  The
representations and warranties of the Seller set forth in the Transaction
Documents are (in each case) true and correct as if set forth herein.

          (m)  SPECIAL PURPOSE ENTITY.

                 (i)     The capital of the Seller is adequate for the business
     and undertakings of the Seller.


                                        19

<PAGE>

                 (ii)    Other than with respect to the ownership by Arcadia
     Financial of the stock of the Seller and as provided in the Previous Series
     Transaction Documents, the Purchase Agreement, the Sale and Servicing
     Agreement, and the Spread Account Agreement, the Seller is not engaged in
     any business transactions with Arcadia Financial or any Affiliate of
     Arcadia Financial.

                 (iii)   At least one director of the Seller shall be a person
     who is not, and will not be, a director, officer, employee or holder of any
     equity securities of Arcadia Financial or any of its Affiliates or
     Subsidiaries.

                 (iv)    The Seller's funds and assets are not, and will not be,
     commingled with the funds of any other Person, except as provided in the
     Transaction Documents.

                 (v)     The by-laws of the Seller require it to maintain
     (A) correct and complete minute books and records of account, and
     (B) minutes of the meetings and other proceedings of its shareholders and
     board of directors.

          (n)  SOLVENCY; FRAUDULENT CONVEYANCE.  The Seller is solvent and will
not be rendered insolvent by the Transaction and, after giving effect to such
Transaction, the Seller will not be left with an unreasonably small amount of
capital with which to engage in its business.  The Seller does not intend to
incur, or believe that it has incurred, debts beyond its ability to pay such
debts as they mature.  The Seller does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar official
in respect of the Seller or any of its assets.  The amount of consideration
being received by the Seller upon the sale of the Initial Receivables and
related Other Trust Property and contemplated to be received upon the Sale of
the Subsequent Receivables and related Other Trust Property constitutes
reasonably equivalent value and fair consideration for interest in such
Receivables and such Other Trust Property.  The Seller is not transferring the
Other Trust Property to the Trust, as provided in the Transaction Documents,
with any intent to hinder, delay or defraud any of the Seller's creditors.

          (o)  REGISTRATION STATEMENT; PROSPECTUS.  The Seller has filed with
the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-3 (No. 333-48141), including a preliminary prospectus and
prospectus supplement for the registration of the Notes under the Securities
Act, has filed such amendments thereto, and such amended preliminary
prospectuses and prospectus supplements as may have been required to the date
hereof, and will file such additional amendments thereto and such amended
prospectuses and prospectus supplements as may hereafter be required. Such
registration statement (as amended, if applicable) and the prospectus, together
with the prospectus supplement relating to the Notes, constituting a part
thereof (including in each case all documents, if any, incorporated by reference
therein and the information, if any, deemed to be part thereof pursuant to the
rules and regulations of the Commission under the Securities Act (the "Rules and
Regulations"), as from time to time amended or supplemented pursuant to the
Securities Act or otherwise) are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus or prospectus supplement shall be provided by the Seller for use in


                                  20

<PAGE>

connection with the offering of the Notes which differs from the Prospectus
filed with the Commission pursuant to Rule 424 of the Rules and Regulations
(whether or not such revised prospectus is required to be filed by the Seller
pursuant to Rule 424 of the Rules and Regulations), the term "Prospectus" shall
refer to such revised prospectus and prospectus supplement from and after the
time it is first provided to the Underwriters for such use. The Registration
Statement at the time they became effective complied, and at each time that the
Prospectus is provided to the Underwriters for use in connection with the
offering or sale of any Note will comply, in all material respects with the
requirements of the Securities Act and the Rules and Regulations.  The
Registration Statement and the Prospectus at the time the Registration Statement
became effective did not and on the date hereof does not, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
the Prospectus at the time it was first provided to the Underwriters for use in
connection with the offering of the Notes did not, and on the date hereof does
not, contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein in light of the circumstances
under which they were made not misleading, except that the representations and
warranties in this subparagraph shall not apply to statements in or omissions
from the Registration Statement or the Prospectus or any preliminary prospectus
made in reliance upon information furnished to the Seller in writing by
Financial Security expressly for use therein or the financial statements
(including the related notes thereto) of Financial Security.

          (p)  ERISA.  The Seller is in compliance with ERISA and has not
incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan.

          (q)  PLEDGE OF SHARES.  The shares of stock of the Seller which have
been pledged pursuant to the Stock Pledge Agreement constitute all of the issued
and outstanding shares of the Seller.

          (r)  PERFECTION OF LIENS AND SECURITY INTEREST.  On the Closing Date,
the Lien and security interest in favor of the Indenture Collateral Agent with
respect to Indenture Property will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection thereof, the delivery of the Receivable Files for
the Receivables to the Custodian, and the establishment of the Collection
Account, the Subcollection Account, the Lockbox Account, the Pre-Funding
Account, the Reserve Account and the Note Distribution Account in accordance
with the provisions of the Transaction Documents, and no other filings in any
jurisdiction or any other actions (except as expressly provided herein) are
necessary to perfect the Collateral Agent's Lien on and security interest in the
Collateral as against any third parties.

          (s)  SECURITY INTEREST IN FUNDS AND INVESTMENTS.  Assuming the
retention of funds in the Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and 


                                     21

<PAGE>


perfected, first priority security interest in favor of the Collateral Agent 
on behalf of the Indenture Trustee (on behalf of the Noteholders) and 
Financial Security.

          Section 2.05   AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL AND THE
SELLER.  Each of Arcadia Financial and the Seller hereby agree that during the
Term of the Agreement, unless Financial Security shall otherwise expressly
consent in writing:

          (a)  COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  The Seller will
comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it.  The Seller will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall have occurred and be continuing) Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of Financial Security.  The
Seller shall not take any action or fail to take any action that would interfere
with the enforcement of any rights under this Agreement or the other Transaction
Documents.


          (b)  CORPORATE EXISTENCE.  The Seller shall maintain its corporate
existence and shall at all times continue to be duly organized under the laws of
Delaware and duly qualified and duly authorized (as described in Sections
2.04(a), (b) and (c) hereof) and shall conduct its business in accordance with
the terms of its corporate charter and bylaws.

          (c)  FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. 
The Seller shall keep or cause to be kept in reasonable detail books and records
of account of the Seller's assets and business, and shall clearly reflect
therein the transfer of the Receivables and the Other Trust Property to the
Trust and the sale of the Receivables as a sale to the Trust of the Seller's
interest in the Receivables and the Other Trust Property.  The Seller shall
furnish to Financial Security, simultaneously with the delivery of such
documents to the Trustee or the Noteholders, as the case may be, copies of all
reports, certificates, statements, financial statements or notices furnished to
the Trustee or the Noteholders, as the case may be, pursuant to the Transaction
Documents.  The Seller shall furnish to Financial Security as soon as available,
and in any event within 90 days after the close of each fiscal year of the
Seller, the unaudited balance sheet of the Seller as of the end of such fiscal
year and the unaudited statements of income, changes in shareholders' equity and
cash flows of the Seller for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the preceding fiscal
year, prepared in accordance with generally accepted accounting principles,
consistently applied.

          (d)  COMPLIANCE CERTIFICATE.  The Seller shall deliver to Financial
Security, within 90 days after the close of each fiscal year of the Seller, a
certificate signed by an Authorized Officer of the Seller stating that:

                 (i)     a review of the Seller's performance under the
     Transaction Documents during such period has been made under such officer's
     supervision; and


                                               22

<PAGE>


                 (ii)    to the best of such individual's knowledge following
     reasonable inquiry, no Default or Event of Default has occurred, or if a
     Default or Event of Default has occurred, specifying the nature thereof
     and, if the Seller has or had a right to cure pursuant to Section 5.01,
     stating in reasonable detail the steps, if any, taken or being taken by the
     Seller to cure such Default or Event of Default or to otherwise comply with
     the terms of the Transaction Document to which such Default or Event of
     Default relates.

                 (iii)   the financial reports submitted in accordance with
     Section 2.05(c) hereof, are complete and correct in all material respects
     and present fairly the financial condition and results of operations of the
     Seller as of the dates and for the periods indicated, in accordance with
     generally accepted accounting principles consistently applied.

          (e)  ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. 
The Seller shall, upon the request of Financial Security, permit Financial
Security or its authorized agents (i) to inspect the books and records of the
Seller as they may relate to the Notes, the Receivables and the Other Trust
Property, the obligations of the Seller under the Transaction Documents, the
Seller's business and the Transaction and (ii) to discuss the affairs, finances
and accounts of the Seller with any of its officers, directors and
representatives, including its Independent Accountants. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of the Seller.  The books and records of the
Seller will be maintained at the address of the Seller designated herein for
receipt of notices, unless the Seller shall otherwise advise the parties hereto
in writing.

          (f)  NOTICE OF MATERIAL EVENTS.  The Seller shall promptly inform
Financial Security in writing of the occurrence of any of the following:

                 (i)     the submission of any claim or the initiation of any
     legal process, litigation or administrative or judicial investigation
     against the Seller involving potential damages or penalties in an uninsured
     amount in excess of $5,000 in any one instance or $25,000 in the aggregate;

                 (ii)    any change in the location of Seller's principal office
     or any change in the location of the Seller's books and records;

                 (iii)   the occurrence of any Default or Event of Default;

                 (iv)    the commencement or threat of any rule making or
     disciplinary proceedings or any proceedings instituted by or against the
     Seller in any federal, state or local court or before any governmental body
     or agency, or before any arbitration board, or the promulgation of any
     proceeding or any proposed or final rule which, if adversely determined,
     would result in a Material Adverse Change with respect to the Seller or the
     Trust;

                 (v)     the commencement of any proceedings by or against the
     Seller under any applicable bankruptcy, reorganization, liquidation,
     rehabilitation, insolvency or other 


                                            23

<PAGE>

     similar law now or hereafter in effect or of any proceeding in which a 
     receiver, liquidator, conservator, trustee or similar official shall 
     have been, or may be, appointed or requested for the Seller or any of 
     its assets;

                 (vi)    the receipt of notice that (A) the Seller is being
     placed under regulatory supervision, (B) any license, permit, charter,
     registration or approval necessary for the conduct of the Seller's business
     is to be, or may be, suspended or revoked, or (C) the Seller is to cease
     and desist any practice, procedure or policy, employed by the Seller in the
     conduct of its business, and such cessation may result in a Material
     Adverse Change with respect to the Seller or the Trust; or

                 (vii)   any other event, circumstance or condition that has
     resulted, or has a material possibility of resulting, in a Material Adverse
     Change in respect of the Seller, or the Trust.

          (g)  FURTHER ASSURANCES.  The Seller will file all necessary financing
statements, assignments or other instruments, and any amendments or continuation
statements relating thereto, necessary to be kept and filed in such manner and
in such places as may be required by law to preserve and protect fully the Lien
and security interest in, and all rights of the Trust with respect to Other
Trust Property, under the Sale and Servicing Agreement.  In addition, the Seller
shall, upon the request of Financial Security (so long as no Insurer Default has
occurred and is continuing), from time to time, execute, acknowledge and deliver
and, if necessary, file such further instruments and take such further action as
may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents to which the Seller is a party or to
protect the interest of the Trust in the Receivables under the Sale and
Servicing Agreement. The Seller agrees to cooperate with the Rating Agencies in
connection with any review of the Transaction which may be undertaken by the
Rating Agencies after the date hereof.

          (h)  MAINTENANCE OF LICENSES.  The Seller shall maintain all licenses,
permits, charters and registrations which are material to the performance by the
Seller of its obligations under this Agreement and each other Transaction
Document to which the Seller is a party or by which the Seller is bound.

          (i)  DISCLOSURE DOCUMENT.  Each Prospectus delivered with respect to
the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law.  In addition, each Prospectus delivered with respect to the
Notes which includes financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:

          The New York State Insurance Department recognizes only
          statutory accounting practices for determining and reporting
          the financial condition and results of operations of an
          insurance company, for determining its solvency under the
          New York 


                                       24

<PAGE>


          Insurance Law, and for determining whether its financial condition 
          warrants the payment of a dividend to its stockholders.  No 
          consideration is given by the New York State Insurance Department 
          to financial statements prepared in accordance with generally 
          accepted accounting principles in making such determinations.

          (j)  SPECIAL PURPOSE ENTITY.

                 (i)     The Seller shall conduct its business solely in its own
     name through its duly authorized officers or agents so as not to mislead
     others as to the identity of the entity with which those others are
     concerned, and particularly will use its best efforts to avoid the
     appearance of conducting business on behalf of Arcadia Financial or any
     other Affiliate thereof or that the assets of the Seller are available to
     pay the creditors of Arcadia Financial or any Affiliate thereof.  Without
     limiting the generality of the foregoing, all oral and written
     communications, including, without limitation, letters, invoices, purchase
     orders, contracts, statements and loan applications, will be made solely in
     the name of the Seller.

                 (ii)    The Seller shall maintain corporate records and books
     of account separate from those of Arcadia Financial and the other
     Affiliates thereof.

                 (iii)   The Seller shall obtain proper authorization from its
     board of directors of all corporate action requiring such authorization,
     meetings of the board of directors of the Seller shall be held not less
     frequently than three times per annum and copies of the minutes of each
     such board meeting shall be delivered to Financial Security within two
     weeks of such meeting.

                 (iv)    The Seller shall obtain proper authorization from its
     shareholders of all corporate action requiring shareholder approval,
     meetings of the shareholders of the Seller shall be held not less
     frequently than one time per annum and copies of each such authorization
     and the minutes of each such shareholder meeting shall be delivered to
     Financial Security within two weeks of such authorization or meeting, as
     the case may be.

                 (v)     Although the organizational expenses of the Seller have
     been paid by Arcadia Financial, operating expenses and liabilities of the
     Seller shall be paid from its own funds.

                 (vi)    The annual financial statements of the Seller shall
     disclose the effects of the Seller's transactions in accordance with
     generally accepted accounting principles and shall disclose that the assets
     of the Seller are not available to pay creditors of Arcadia Financial or
     any other Affiliate thereof.

                 (vii)   The resolutions, agreements and other instruments of
     the Seller underlying the transactions described in this Agreement and in
     the other Transaction Documents shall be continuously maintained by the
     Seller as official records of the Seller 


                                             25

<PAGE>

     separately identified and held apart from the records of Arcadia Financial 
     and each other Affiliate thereof.

                 (viii)  The Seller shall maintain an arm's-length relationship
     with Arcadia Financial and the other Affiliates thereof and will not hold
     itself out as being liable for the debts of Arcadia Financial or any
     Affiliate thereof.

                 (ix)    The Seller shall keep its assets and its liabilities
     wholly separate from those of all other entities, including, but not
     limited to Arcadia Financial and the other Affiliates thereof except, in
     each case, as contemplated by the Transaction Documents.

          (k)  CLOSING DOCUMENTS.  The Seller shall provide or cause to be
provided to Financial Security an executed original copy of each document
executed in connection with the Transaction within 10 days after the Closing
Date, except that the Seller shall cause a copy of the Trust Agreement, the Sale
and Servicing Agreement, the Series 1999-A Supplement, the Indenture, the
Administration Agreement and each Transaction Document to which Financial
Security is a party to be provided to Financial Security on the Closing Date.

          (l)  SUBSEQUENT RECEIVABLES; GOOD TITLE; VALID TRANSFER; ABSENCE OF
LIENS; SECURITY INTEREST.  Immediately prior to the sale to the Trust pursuant
to a Subsequent Transfer Agreement, the Seller will be the owner of, and shall
have good and marketable title to, the Subsequent Receivables transferred
thereby and the related Other Trust Property free and clear of all Liens and
Restrictions on Transferability, and shall have full right, corporate power and
lawful authority to assign, transfer and pledge such property.

          (m)  INCORPORATION OF COVENANTS.  The Seller agrees to comply with
each of the Seller's covenants set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.

          Section 2.06   NEGATIVE COVENANTS OF ARCADIA FINANCIAL AND THE SELLER.
Each of Arcadia Financial and the Seller hereby agrees that during the Term of
this Agreement, unless Financial Security shall otherwise give its prior express
written consent:

          (a)  WAIVER; AMENDMENTS, ETC.  The Seller shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of any of the Transaction Documents or
Previous Series Transaction Documents or of its certificate of incorporation or
by-laws (i)  unless, if no Insurer Default shall have occurred and be
continuing, Financial Security shall have consented thereto in writing or (ii) 
if an Insurer Default shall have occurred and be continuing, which would
adversely affect the interests of Financial Security.

          (b)  CREATION OF INDEBTEDNESS; GUARANTEES.  The Seller shall not
create, incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person 


                                   26

<PAGE>

or causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents or as contemplated by the documents
relating to a Series of Notes.

          (c)  SUBSIDIARIES.  The Seller shall not form, or cause to be formed,
any Subsidiaries.

          (d)  NO LIENS.  The Seller shall not, except as contemplated by the
Transaction Documents or as contemplated by the documents relating to a Series
of Notes, create, incur, assume or suffer to exist any Lien of any nature upon
or with respect to any of its properties or assets, now owned or hereafter
acquired, or sign or file under the Uniform Commercial Code of any jurisdiction
any financing statement that names the Seller as debtor, or sign any security
agreement authorizing any secured party thereunder to file such a financing
statement.

          (e)  ISSUANCE OF STOCK.  The Seller shall not issue any shares of
capital stock or rights, warrants or options in respect of its capital stock or
securities convertible into or exchangeable for its capital stock, other than
the shares of common stock which have been pledged to Financial Security under
the Stock Pledge Agreement.

          (f)  IMPAIRMENT OF RIGHTS.  The Seller shall not take any action, or
fail to take any action, if such action or failure to take action may interfere
with the enforcement of any rights under the Transaction Documents that are
material to the rights, benefits or obligations of the Trust, the Indenture
Trustee, the Noteholders or Financial Security.

          (g)  NO MERGERS.  The Seller shall not consolidate with or merge into
any Person or transfer all or any material amount of its assets to any Person
(except as contemplated by the Transaction Documents or the documents relating
to a Series of Notes).

          (h)  ERISA.  The Seller shall not contribute or incur any obligation
to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.

          (i)  OTHER ACTIVITIES.  The Seller shall not:

                 (i)     sell, pledge, transfer, exchange or otherwise dispose
     of any of its assets except as permitted under the Transaction Documents or
     the documents relating to a Series of Notes; or

                 (ii)    engage in any business or activity except as
     contemplated by the Transaction Documents or as contemplated by the
     documents relating to a Series of Notes and as permitted by its certificate
     of incorporation.

          (j)  INSOLVENCY.  The Seller shall not commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, consolidation or other relief with respect to it or the Trust or
(B) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for the Trust or for 


                                          27

<PAGE>


all or any substantial part of its assets or the Collateral related to any or 
all Series, or make a general assignment for the benefit of its creditors. 
The Seller shall not take any action in furtherance of, or indicating the 
consent to, approval of, or acquiescence in any of the acts set forth above.  
The Seller shall not admit in writing its inability to pay its debts.

          (k)  DIVIDENDS.  The Seller shall not declare or make payment of (i) 
any dividend or other distribution on any shares of its capital stock, or (ii) 
any payment on account of the purchase, redemption, retirement or acquisition of
any option, warrant or other right to acquire shares of its capital stock,
unless (in each case) at the time of such declaration or payment (and after
giving effect thereto) no amount payable by the Seller under any Transaction
Document with respect to any Series is then due and owing but unpaid.

          Section 2.07   REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL. 
Arcadia Financial represents and warrants, as of the date hereof and as of the
Closing Date, as follows:

          (a)  DUE ORGANIZATION AND QUALIFICATION.  Arcadia Financial and each
of its Subsidiaries is a corporation, duly organized, validly existing and in
good standing under the laws of the State of its respective incorporation with
power and authority to own its properties and conduct its business.  Arcadia
Financial and each of its Subsidiaries is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would render any of the Receivables unenforceable in any respect or would
otherwise have a material adverse effect upon the Transaction.  Arcadia
Financial and each of its Subsidiaries has obtained all licenses, permits,
charters, registrations and approvals necessary for the conduct of its business
as currently conducted and as described in the Prospectus and for the
performance of its obligations under the Transaction Documents.

          (b)  POWER AND AUTHORITY.  Arcadia Financial has all necessary
corporate power and authority to conduct its business as currently conducted and
as described in the Prospectus, to execute, deliver and perform its obligations
under this Agreement and each other Transaction Document to which it is a party
and to carry out the terms of each such agreement.

          (c)  DUE AUTHORIZATION.  The execution, delivery and performance of
this Agreement and each other Transaction Document to which Arcadia Financial is
a party has been duly authorized by all necessary corporate action and does not
require any additional approvals or consents or other action by or any notice to
or filing with any Person, including, without limitation, any governmental
entity or Arcadia Financial's shareholders.

          (d)  NONCONTRAVENTION.  Neither the execution and delivery of this
Agreement and each other Transaction Document to which Arcadia Financial is a
party, the consummation of the Transaction, nor the satisfaction of the terms
and conditions of this Agreement and each other Transaction Document to which
Arcadia Financial is a party,

                 (i)     conflicts with or results in any breach or violation of
     any provision of the corporate charter or bylaws of Arcadia Financial or
     any law, rule, regulation, order, writ, judgment, injunction, decree,
     determination or award currently in effect having 


                                     28

<PAGE>

     applicability to Arcadia Financial or any of its properties, including 
     regulations issued by an administrative agency or other governmental 
     authority having supervisory powers over Arcadia Financial,

                 (ii)    constitutes a default by Arcadia Financial under or a
     breach of any provision of any loan agreement, mortgage, indenture or other
     agreement or instrument to which Arcadia Financial or any of its
     Subsidiaries is a party or by which it or any of its or their properties is
     or may be bound or affected, or

                 (iii)   results in or requires the creation of any Lien upon or
     in respect of any of Arcadia Financial's assets, except as otherwise
     expressly contemplated by the Transaction Documents.

          (e)  PENDING LITIGATION OR OTHER PROCEEDING.  There is no action,
proceeding or investigation pending, or, to Arcadia Financial's best knowledge,
threatened, before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over Arcadia Financial or its
properties: (A) asserting the invalidity of this Agreement or any other
Transaction Document to which Arcadia Financial is a party, (B) seeking to
prevent the issuance of the Notes, or the consummation of the Transaction,
(C) seeking any determination or ruling that might materially and adversely
affect the validity or enforceability of, this Agreement or any other
Transaction Document to which Arcadia Financial is a party, (D) which might
result in a Material Adverse Change with respect to Arcadia Financial or
(E) which might adversely affect the federal or state tax attributes of the
Notes or the Trust.

          (f)  VALID AND BINDING OBLIGATIONS.  The Purchase Agreement
constitutes a valid sale, transfer, and assignment of the Receivables and Other
Trust Property to the Seller, enforceable against creditors of and purchasers
from Arcadia Financial.  Each of the other Transaction Documents to which
Arcadia Financial is a party when executed and delivered by Arcadia Financial,
and assuming the due authorization, execution and delivery by the other parties
thereto, will constitute the legal, valid and binding obligation of Arcadia
Financial enforceable in accordance with its respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable principles.

          (g)  NO CONSENTS.  No consent, license, approval or authorization 
from, or registration, filing or declaration with, any regulatory body, 
administrative agency, or other governmental instrumentality, nor any 
consent, approval, waiver or notification of any creditor, lessor or other 
non-governmental person, is required in connection with the execution, 
delivery and performance by Arcadia Financial of this Agreement or of any 
other Transaction Document to which Arcadia Financial is a party, except (in 
each case) such as have been obtained and are in full force and effect.

          (h)  FINANCIAL STATEMENTS.  The Financial Statements of Arcadia
Financial, copies of which have been furnished to Financial Security, (i)  are,
as of the dates and for the periods referred to therein, complete and correct in
all material respects, (ii)  present fairly the financial condition and results
of operations of Arcadia Financial as of the dates and for the 


                                      29

<PAGE>


periods indicated and (iii) have been prepared in accordance with generally 
accepted accounting principles consistently applied, except as noted therein 
(subject as to interim statements to normal year-end adjustments and the 
absence of notes). Since the date of the most recent Financial Statements, 
there has been no material adverse change in such financial condition or 
results of operations.  Except as disclosed in the Financial Statements, 
Arcadia Financial is not subject to any contingent liabilities or commitments 
that, individually or in the aggregate, have a reasonable likelihood of 
causing a Material Adverse Change in respect of Arcadia Financial.

          (i)  COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy
employee or proposed to be employed by Arcadia Financial in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to Arcadia Financial which, if enforced, would result in a Material
Adverse Change with respect to Arcadia Financial.

          (j)  TAXES.  Arcadia Financial has, and each of its Subsidiaries have,
filed all federal and state tax returns and paid all taxes to the extent that
such taxes have become due.  Any taxes, fees and other governmental charges
payable by Arcadia Financial in connection with the Transaction, the execution
and delivery of the Transaction Documents and the issuance of the Notes have
been paid or shall have been paid at or prior to the Closing Date.

          (k)  ERISA.  Arcadia Financial is in compliance with ERISA and has not
incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan except in
accordance with the provisions of Section 2.9(e) hereof.

          (l)  INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES.  Arcadia
Financial represents and warrants to Financial Security that the representations
and warranties of Arcadia Financial set forth in the Transaction Documents are
(in each case) true and correct as if set forth herein.

          Section 2.08   AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL.  Arcadia
Financial hereby agrees that during the Term of the Agreement, unless Financial
Security shall otherwise expressly consent in writing:

          (a)  COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  Arcadia
Financial will comply with all terms and conditions of this Agreement and each
other Transaction Document to which it is a party and all material requirements
of any law, rule or regulation applicable to it.  Arcadia Financial will not
cause or permit to become effective any amendment to or modification of any
Transaction Document to which it is a party (i) unless, so long as no Insurer
Default shall have occurred and be continuing, Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such
amendment would not adversely affect the interests of Financial Security. 
Arcadia Financial shall not take any action or fail to take any action that
would interfere with the enforcement of any rights under this Agreement or the
other Transaction Documents.


                                         30

<PAGE>

          (b)  CORPORATE EXISTENCE.  Arcadia Financial shall maintain its
corporate existence and shall at all times continue to be duly organized under
the laws of Minnesota and duly qualified and duly authorized (as described in
Sections 2.07(a), (b) and (c) hereof) and shall conduct its business in
accordance with the terms of its corporate charter and bylaws.

          (c)  FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. 
Arcadia Financial shall keep or cause to be kept in reasonable detail books and
records of account of Arcadia Financial's assets and business.  Arcadia
Financial, so long as it shall be the Servicer, shall furnish to Financial
Security, simultaneously with the delivery of such documents to the Owner
Trustee, Indenture Trustee or the Noteholders, as the case may be, copies of all
reports, certificates, statements or notices furnished to the Owner Trustee,
Indenture Trustee or the Noteholders, as the case may be, pursuant to the
Transaction Documents.  Arcadia Financial shall also furnish or cause to be
furnished to Financial Security:

                 (i)     ANNUAL FINANCIAL STATEMENTS.  As soon as available, and
     in any event within 90 days after the close of each fiscal year of Arcadia
     Financial, the audited balance sheets of Arcadia Financial and its
     subsidiaries as of the end of such fiscal year and the audited consolidated
     statements of income, changes in shareholders' equity and cash flows of
     Arcadia Financial for such fiscal year, all in reasonable detail and
     stating in comparative form the respective figures for the corresponding
     date and period in the preceding fiscal year, prepared in accordance with
     generally accepted accounting principles, consistently applied, and
     accompanied by the certificate of Arcadia Financial's independent
     accountants (which, so long as no Insurer Default shall have occurred and
     be continuing, shall be acceptable to Financial Security) and by the
     certificate specified in Section 2.08(d) hereof.

                 (ii)    QUARTERLY FINANCIAL STATEMENTS.  As soon as available,
     and in any event within 45 days after the close of each of the first three
     quarters of each fiscal year of Arcadia Financial, the unaudited
     consolidated balance sheets of Arcadia Financial as of the end of such
     quarter and the unaudited consolidated statements of income, changes in
     shareholders' equity and cash flows of Arcadia Financial for the portion of
     the fiscal year then ended, all in reasonable detail and stating in
     comparative form the respective figures for the corresponding date and
     period in the preceding fiscal year, prepared in accordance with generally
     accepted accounting principles consistently applied (subject to normal
     year-end adjustments), and accompanied by the certificate specified in
     Section 2.08(d) hereof.

                 (iii)   ACCOUNTANTS' REPORTS.  Promptly upon receipt thereof,
     copies of any reports submitted to Arcadia Financial by its independent
     accountants in connection with any examination of the financial statements
     of Arcadia Financial.

                 (iv)    CERTAIN INFORMATION.  Promptly after the filing or
     sending thereof, copies of all proxy statements, financial statements,
     reports and registration statements which Arcadia Financial files, or
     delivers to, the IRS, the Commission, or any other 


                                      31
<PAGE>

     federal government agency, authority or body which supervises the 
     issuance of securities by Arcadia Financial or any national securities
     exchange.

          (d)  COMPLIANCE CERTIFICATE.  Arcadia Financial shall deliver to
Financial Security within 90 days after the close of each fiscal year of Arcadia
Financial, a certificate signed by an Authorized Officer of Arcadia Financial
stating that:

                 (i)     a review of Arcadia Financial's performance under the
     Transaction Documents during such period has been made under such officer's
     supervision;

                 (ii)    to the best of such individual's knowledge following
     reasonable inquiry, no Default or Event of Default has occurred, or if a
     Default or Event of Default has occurred, specifying the nature thereof
     and, if Arcadia Financial has or had a right to cure pursuant to Section
     5.01 hereof, stating in reasonable detail the steps, if any, taken or being
     taken by Arcadia Financial to cure such Default or Event of Default or to
     otherwise comply with the terms of the Transaction Document to which such
     Default or Event of Default relates; and

                 (iii)   the financial statements submitted in accordance with
     Section 2.08(c) hereof, as applicable, are complete and correct in all
     material respects and present fairly the financial condition and results of
     operations of Arcadia Financial as of the dates and for the periods
     indicated, in accordance with generally accepted accounting principles
     consistently applied (subject as to interim statements to normal year-end
     adjustments and the absence of notes).

          (e)  ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. 
Arcadia Financial shall, upon the request of Financial Security, permit
Financial Security or its authorized agents (i) to inspect the books and
records of Arcadia Financial as they may relate to the Notes, the Receivables,
the obligations of Arcadia Financial as Servicer under the Transaction
Documents, its business and the Transaction and (ii) to discuss the affairs,
finances and accounts of Arcadia Financial with any of its officers, directors
and representatives, including its Independent Accountants. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of Arcadia Financial.  The books and records
of Arcadia Financial will be maintained at the address of Arcadia Financial
designated herein for receipt of notices, unless Arcadia Financial shall
otherwise advise the parties hereto in writing.

          (f)  NOTICE OF MATERIAL EVENTS.  Arcadia Financial shall promptly
inform Financial Security in writing of the occurrence of any of the following:

                 (i)     the submission of any claim or the initiation of any
     legal process, litigation or administrative or judicial investigation
     against Arcadia Financial involving potential damages or penalties in an
     uninsured amount in excess of $10,000 in any one instance or $25,000 in the
     aggregate;


                                      32
<PAGE>

                 (ii)    any change in the location of Arcadia Financial's
     principal office or any change in the location of the Arcadia Financial's
     books and records;

                 (iii)   the occurrence of any Default or Event of Default;

                 (iv)    the commencement or threat of any rule making or
     disciplinary proceedings or any proceedings instituted by or against
     Arcadia Financial in any federal, state or local court or before any
     governmental body or agency, or before any arbitration board, or the
     promulgation of any proceeding or any proposed or final rule which, if
     adversely determined, would result in a Material Adverse Change with
     respect to Arcadia Financial;

                 (v)     the commencement of any proceedings by or against
     Arcadia Financial under any applicable bankruptcy, reorganization,
     liquidation, rehabilitation, insolvency or other similar law now or
     hereafter in effect or of any proceeding in which a receiver, liquidator,
     conservator, trustee or similar official shall have been, or may be,
     appointed or requested for Arcadia Financial or any of its assets;

                 (vi)    the receipt of notice that (A) Arcadia Financial is
     being placed under regulatory supervision, (B) any license, permit,
     charter, registration or approval necessary for the conduct of Arcadia
     Financial's business is to be, or may be, suspended or revoked, or
     (C) Arcadia Financial is to cease and desist any practice, procedure or
     policy employed by Arcadia Financial in the conduct of its business, and
     such cessation may result in a Material Adverse Change with respect to
     Arcadia Financial; or

                 (vii)   any other event, circumstance or condition that has
     resulted, or has a material possibility of resulting, in a Material Adverse
     Change in respect of Arcadia Financial.

          (g)  MAINTENANCE OF LICENSES.  Arcadia Financial shall maintain all
licenses, permits, charters and registrations which are material to the
performance by Arcadia Financial of its obligations under this Agreement and
each other Transaction Document to which Arcadia Financial is a party or by
which Arcadia Financial is bound.

          (h)  ERISA.  Arcadia Financial shall give Financial Security prompt
notice of each of the following events (but in no event more than 30 days after
the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the
failure to make a required contribution to a Plan or Multiemployer Plan, (iii) 
a Reportable Event, (iv) any action by a Commonly Controlled Entity to
terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by
the PBGC to terminate or appoint a trustee to administer a Plan, (vi)  the
reorganization or insolvency of any Multiemployer Plan and (vii) an aggregate
Underfunding for all Underfunded Plans in excess of $100,000.  In addition,
Arcadia Financial shall promptly (but in no case more than 30 days following
issuance or receipt by the Commonly Controlled Entity) provide to Financial
Security a copy of all correspondence between a Commonly Controlled Entity and
the PBGC, IRS, Department of Labor or the administrators of a Multiemployer Plan


                                      33
<PAGE>

relating to any of the events described in the preceding sentence or the
underfunded status, termination or possible termination of a Plan or a
Multiemployer Plan.

          (i)  THIRD-PARTY BENEFICIARY.  Arcadia Financial agrees that Financial
Security shall have all rights of a third-party beneficiary in respect of the
Sale and Servicing Agreement, it being understood that the remedies of Financial
Security with respect to the representations and warranties set forth in Section
2.4(b) thereof and the covenants set forth in Section 3.6(a) thereof shall be
limited to the remedies set forth in the Sale and Servicing Agreement.

          (j)  INCORPORATION OF COVENANTS.  Arcadia Financial agrees to comply
with each of Arcadia Financial's covenants set forth in the Transaction
Documents and hereby incorporates such covenants by reference as if each were
set forth herein.

          Section 2.09   NEGATIVE COVENANTS OF ARCADIA FINANCIAL.  Arcadia 
Financial hereby agrees that during the Term of this Agreement, unless 
Financial Security shall otherwise give its express written consent:

          (a)  RESTRICTIONS ON LIENS.  Arcadia Financial shall not create, incur
or suffer to exist, or agree to create, incur or suffer to exist, or consent to
cause or permit in the future (upon the happening of a contingency or otherwise)
the creation, incurrence or existence of any Lien or Restriction on
Transferability on the Receivables and the Other Trust Property except for the
Liens in favor of the Seller, the Trust and the Indenture Collateral Agent for
the benefit of the Indenture Trustee and Financial Security contemplated by the
Transaction Documents and the Restrictions on Transferability imposed by the
Purchase Agreement and the Sale and Servicing Agreement.

          (b)  IMPAIRMENT OF RIGHTS.  Arcadia Financial shall not take any
action, or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the Transaction Documents
that are material to the rights, benefits or obligations of the Seller, the
Trust, the Indenture Trustee, the Noteholders or Financial Security.

          (c)  LIMITATION ON MERGERS.  Arcadia Financial shall not consolidate
with or merge with or into any Person or transfer all or any material part of
its assets to any Person (except as contemplated by the Transaction Documents)
or liquidate or dissolve, provided that Arcadia Financial may consolidate with,
merge with or into, or transfer all or a material part of its assets to, another
corporation if (i)  the acquiror of its assets, or the corporation surviving
such merger or consolidation, shall be organized and existing under the laws of
any state and shall be qualified to transact business in each jurisdiction in
which failure to qualify would render any Transaction Document unenforceable or
would result in a Material Adverse Change in respect of Arcadia Financial or the
Trust Property; (ii)  after giving effect to such consolidation, merger or
transfer of assets, no Default or Event of Default shall have occurred or be
continuing; (iii) such acquiring or surviving entity can lawfully perform the
obligations of Arcadia Financial under the Transaction Documents and shall
expressly assume in writing all of the obligations of Arcadia Financial,
including, without limitation, its obligations under the Transaction Documents;
and (iv) such acquiring or surviving entity and the consolidated group of which
it is a part shall each 


                                      34
<PAGE>

have a net worth immediately subsequent to such consolidation, merger or 
transfer of assets at least equal to the net worth of Arcadia Financial 
immediately prior to such consolidation, merger or transfer of assets; and 
Arcadia Financial shall give Financial Security written notice of any such 
consolidation, merger or transfer of assets on the earlier of: (A) the date 
upon which any publicly available filing or release is made with respect to 
such action or (B) 10 Business Days prior to the date of consummation of such 
action. Arcadia Financial shall furnish to Financial Security all information 
requested by it that is reasonably necessary to determine compliance with 
this paragraph.

          (d)  WAIVER; AMENDMENTS, ETC.  Arcadia Financial shall not waive,
modify, amend, supplement or consent to any waiver, modification, amendment of
or supplement to, any of the provisions of any of the Transaction Documents
without the prior written consent of Financial Security (i) unless, so long as
no Insurer Default shall have occurred and be continuing, Financial Security
shall have consented thereto in writing or (ii) if an Insurer Default shall
have occurred and be continuing, which would adversely affect the interests of
Financial Security.

          (e)  ERISA.  Arcadia Financial shall not contribute or incur any
obligation to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan, except that Arcadia Financial may make such a contribution
or incur such a liability provided that neither Arcadia Financial nor any
Commonly Controlled Entity will:

                 (i)     terminate any Plan so as to incur any material
     liability to the PBGC;

                 (ii)    knowingly participate in any "prohibited transaction"
     (as defined in ERISA) involving any Plan or Multiemployer Plan or any trust
     created thereunder which would subject any of them to a material tax or
     penalty on prohibited transactions imposed under Section 4975 of the Code
     or ERISA;

                 (iii)   fail to pay to any Plan or Multiemployer Plan any
     contribution which it is obligated to pay under the terms of such Plan or
     Multiemployer Plan, if such failure would cause such Plan to have any
     material Accumulated Funding Deficiency, whether or not waived; or

                 (iv)    allow or suffer to exist any occurrence of a Reportable
     Event, or any other event or condition, which presents a material risk of
     termination by the PBGC of any Plan or Multiemployer Plan, to the extent
     that the occurrence or nonoccurrence of such Reportable Event or other
     event or condition is within the control of it or any Commonly Controlled
     Entity.

          (f)  INSOLVENCY.  Arcadia Financial shall not commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, consolidation or other relief
with respect to the Seller or (B) seeking appointment of a receiver, trustee,
custodian or other similar 


                                      35
<PAGE>

official for the Seller.  Arcadia Financial shall not take any action in 
furtherance of, or indicating the consent to, approval of, or acquiescence in 
any of the acts set forth above.

                                    ARTICLE III.
                                          
                                          
                  THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION

          Section 3.01   CONDITIONS PRECEDENT TO ISSUANCE OF THE NOTE POLICY.
Financial Security agrees to issue the Note Policy subject to satisfaction of
the conditions set forth below.

          (a)  The obligation of Financial Security to issue the Note Policy is
subject to the following having occurred or being true (as the case may be):
(i) Financial Security shall have received evidence satisfactory to it that the
Seller shall have assigned, conveyed and transferred, or caused to be assigned,
conveyed and transferred, the Initial Receivables to the Trust, (ii) the Seller
shall have created a valid security interest in, and Lien on, the Receivables in
favor of the Trust, (iii) the Trust shall have created a valid security
interest in, and Lien on, the Indenture Property in favor of the Indenture
Collateral Agent on behalf of the Indenture Trustee (on behalf of the
Noteholders) and Financial Security, (iv) the initial Premium shall have been
paid in accordance with Section 3.02 hereof, (v) the representations and
warranties of the Trust, the Seller and of Arcadia Financial and the Servicer
set forth or incorporated by reference in this Agreement shall be true and
correct on and as of the Closing Date, and (vi) each Transaction Document shall
be in full force and effect and no Default thereunder shall have occurred and be
continuing.

          (b)  The obligation of Financial Security to issue the Note Policy is
further subject to the condition precedent that Financial Security shall have
received on the Closing Date, or, in its sole and absolute discretion, received
the opportunity to review prior to and on the Closing Date, the following, each
dated the Closing Date and in full force and effect on such date, except as
otherwise provided herein, in form and substance satisfactory to Financial
Security and its counsel:

                 (i)     a certificate of an Authorized Officer of each of the
     Seller and Arcadia Financial stating that nothing has come to the attention
     of such entity to indicate that the Registration Statement or the
     Prospectus, on the date the Registration Statement became effective,
     contained an untrue statement of a material fact or omitted to state a
     material fact required to be stated therein or necessary to make the
     statements therein not misleading, or that the Prospectus on any date on
     which it was forwarded to the Underwriter for use in connection with the
     offering of the Notes contained, or on the Closing Date contains, any
     untrue statement of a material fact or omits to state a material fact
     necessary in order to make the statements made therein, in light of the
     circumstances under which they were made, not misleading;

                 (ii)    copies, certified to be true copies by an Authorized
     Officer of the Owner Trustee, of (i) the resolutions of the board of
     directors of the Owner Trustee authorizing the execution, delivery and
     performance by the Owner Trustee of this 


                                      36
<PAGE>

     Agreement and each other Transaction Document to which the Owner Trustee 
     is a party and all transactions and documents contemplated hereby and 
     thereby, and of all other documents evidencing any other necessary 
     action of the Owner Trustee (which certification shall state that such 
     resolutions have not been modified, are in full force and effect and 
     constitute the only resolutions adopted by the Owner Trustee's board of 
     directors or any committee thereof with respect thereto and (ii) the 
     Certificate of Trust, certified by the Secretary of State or other 
     appropriate official of the State of Delaware;

                 (iii)   copies, certified to be true copies by an Authorized
     Officer of the Seller, of (i) the resolutions of the board of directors of
     the Seller authorizing the execution, delivery and performance of this
     Agreement and each other Transaction Document to which the Seller is a
     party and all transactions and documents contemplated hereby and thereby,
     and of all other documents evidencing any other necessary action of the
     Seller (which certification shall state that such resolutions have not been
     modified, are in full force and effect and constitute the only resolutions
     adopted by the Seller's board of directors or any committee thereof with
     respect thereto), (ii) the corporate charter of the Seller and (iii) the
     by-laws, as amended, of the Seller;

                 (iv)    copies, certified to be true copies by an Authorized
     Officer of Arcadia Financial, of (i) the resolutions of the board of
     directors of Arcadia Financial authorizing the execution, delivery and
     performance of this Agreement and each other Transaction Document to which
     Arcadia Financial is a party and all other transactions and documents
     contemplated hereby and thereby, and of all documents evidencing any other
     necessary action of Arcadia Financial (which certification shall state that
     such resolutions have not been modified, are in full force and effect and
     constitute the only resolutions adopted by Arcadia Financial's board of
     directors or any committee thereof with respect thereto), (ii) the
     corporate charter of Arcadia Financial and (iii) the by-laws, as amended,
     of Arcadia Financial;

                 (v)     a certificate of an Authorized Officer of the Owner
     Trustee stating that (i) all consents, licenses and approvals necessary
     for the Owner Trustee to execute, deliver and perform this Agreement, the
     other Transaction Documents to which the Owner Trustee is a party and all
     other documents and instruments on the part of the Owner Trustee to be
     delivered pursuant hereto or thereto have been obtained, and (ii) all such
     consents, licenses and approvals are in full force and effect, the Owner
     Trustee has not received any notice of any proceeding for the revocation of
     any such license, charter, permit or approval, and, to the Owner Trustee's
     knowledge, there is no threatened action or proceeding or any basis
     therefor;

                 (vi)    a certificate of an Authorized Officer of the Seller
     stating that (i) all consents, licenses and approvals necessary for the
     Seller to execute, deliver and perform this Agreement, the other
     Transaction Documents to which the Seller is a party and all other
     documents and instruments on the part of the Seller to be delivered
     pursuant hereto or thereto have been obtained, and (ii) all such consents,
     licenses and approvals are in full force and effect, the Seller has not
     received any notice of any proceeding for the 


                                      37
<PAGE>

     revocation of any such license, charter, permit or approval, and, to the
     Seller's knowledge, there is no threatened action or proceeding or any 
     basis therefor;

                 (vii)   a certificate of an Authorized Officer of Arcadia
     Financial stating that (i) all consents, licenses and approvals necessary
     for Arcadia Financial to execute, deliver and perform this Agreement, the
     other Transaction Documents to which Arcadia Financial is a party and all
     other documents and instruments on the part of Arcadia Financial to be
     delivered pursuant hereto or thereto have been obtained, and (ii) all such
     consents, licenses and approvals are in full force and effect, Arcadia
     Financial has not received any notice of any proceeding for the revocation
     of any such license, charter, permit or approval, and, to Arcadia
     Financial's knowledge, there is no threatened action or proceeding or any
     basis therefor;

                 (viii)  a certificate of an Authorized Officer of the Owner
     Trustee certifying (i) the names and true signatures of the officers of the
     Owner Trustee executing and delivering this Agreement, the other
     Transaction Documents to which the Owner Trustee is a party and the other
     documents to be executed and delivered by the Owner Trustee hereunder and
     thereunder, (ii) that approval by the Owner Trustee's equity holders of
     the execution and delivery of this Agreement, the other Transaction
     Documents and all other such documents to be executed and delivered, by the
     Owner Trustee hereunder, has been obtained or is not required, and (iii) 
     that no action for the dissolution of the Owner Trustee has been adopted or
     contemplated and that no such proceedings have been commenced or are
     contemplated;

                 (ix)    a certificate of an Authorized Officer of the Seller
     certifying (i)  the names and true signatures of the officers of the Seller
     executing and delivering this Agreement, the other Transaction Documents to
     which the Seller is a party and the other documents to be executed and
     delivered by the Seller hereunder and thereunder, (ii) that approval by
     the Seller's stockholder of the execution and delivery of this Agreement,
     the other Transaction Documents and all other such documents to be executed
     and delivered, by the Seller hereunder, has been obtained or is not
     required, and (iii) that no resolution for the dissolution of the Seller
     has been adopted or contemplated and that no such proceedings have been
     commenced or are contemplated;

                 (x)     a certificate of an Authorized Officer of Arcadia
     Financial certifying (i) the names and true signatures of the officers of
     Arcadia Financial executing and delivering this Agreement, the other
     Transaction Documents to which Arcadia Financial is a party and the other
     documents to be executed and delivered by Arcadia Financial hereunder and
     thereunder, (ii) that approval by Arcadia Financial's shareholders of the
     execution and delivery of this Agreement, the other Transaction Documents
     and all other such documents to be executed and delivered, by Arcadia
     Financial hereunder, has been obtained or is not required, and (iii) that
     no resolution for the dissolution of Arcadia Financial has been adopted or
     contemplated and that no such proceedings have been commenced or are
     contemplated;


                                      38
<PAGE>

                 (xi)    a certificate of an Authorized Officer of the Trust to
     the effect that (x) the representations and warranties of the Trust set
     forth or incorporated by reference in this Agreement are true and correct
     on and as of the Closing Date and (y) confirming that the conditions
     precedent set forth herein with respect to the Trust are satisfied;

                 (xii)   a certificate of an Authorized Officer of the Seller to
     the effect that (x) the representations and warranties of the Seller set
     forth or incorporated by reference in this Agreement are true and correct
     on and as of the Closing Date and (y) confirming that the conditions
     precedent set forth herein with respect to the Seller are satisfied;

                 (xiii)  a certificate of an Authorized Officer of Arcadia
     Financial to the effect that (x) the representations and warranties of
     Arcadia Financial set forth or incorporated by reference in this Agreement
     are true and correct on and as of the Closing Date, and (y) confirming that
     the conditions precedent set forth herein with respect to Arcadia Financial
     are satisfied;

                 (xiv)   favorable opinions of counsel and special Texas counsel
     to the Seller and Arcadia Financial in form and substance satisfactory to
     Financial Security and its counsel;

                 (xv)    a favorable opinion of counsel to each of the Trust,
     the Owner Trustee, the Indenture Trustee and the Collateral Agent and the
     Indenture Collateral Agent, in form and substance satisfactory to Financial
     Security and its counsel;

                 (xvi)   evidence that amounts due and payable Financial
     Security under Section 3.02 of this Agreement have been paid or that
     acceptable provisions therefor have been made;

                 (xvii)  a fully executed copy of each of the Transaction
     Documents;

                 (xviii) evidence that all actions necessary or, in the opinion
     of Financial Security, desirable to perfect and protect the interests
     transferred by the Sale and Servicing Agreement, the liens and security
     interests created with respect to the Spread Account, the Liens and
     security interest created in favor of the Indenture Collateral Agent with
     respect to the Indenture Property pursuant to the Indenture, including,
     without limitation, the filing of any financing statements required by
     Financial Security or its counsel, have been taken;

                 (xix)   a certificate or opinion of Independent Accountants
     addressed to Financial Security in form and substance satisfactory to
     Financial Security;

                 (xx)    evidence that the Seller shall have deposited, or
     caused to have been deposited, the deposits required under the Sale and
     Servicing Agreement and the Spread Account Agreement, and any other
     deposits required to be made on the Closing Date under the Transaction
     Documents to which the Seller is a party; and


                                      39
<PAGE>

                 (xxi)   such other documents, instruments, approvals (and, if
     requested by Financial Security, certified duplicates of executed copies
     thereof) or opinions as Financial Security may reasonably request.

          (c)  ISSUANCE OF RATINGS.  Financial Security shall have received
confirmation that the risk secured by the Note Policy constitutes an investment
grade risk by Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P"), and an insurable risk by Moody's Investors Service,
Inc. ("Moody's"), that the Class A-1 Notes will be rated "A-1+" by S&P and "P-1"
by Moody's and that the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes and
Class A-5 Notes, when issued, will each be rated "AAA" by S&P and "Aaa" by
Moody's.

          (d)  DELIVERY OF DOCUMENTS.  Financial Security shall have received
evidence satisfactory to it that delivery has been made to the Trust or to a
Custodian of the Receivable Files required to be so delivered pursuant to
Section 2.2 of the Sale and Servicing Agreement.

          (e)  NO DEFAULT.  No Default or Event of Default shall have occurred
and be continuing.

          (f)  NO LITIGATION, ETC.  No suit, action or other proceeding,
investigation, or injunction or final judgment relating thereto, shall be
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with any of the Transaction Documents or the consummation of the
Transaction.

          (g)  LEGALITY.  No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents illegal or otherwise prevent the consummation
thereof.

          (h)  SATISFACTION OF CONDITIONS OF UNDERWRITING AGREEMENT.  All
conditions in the Underwriting Agreement to the Underwriters' obligation to
purchase the Notes (other than the issuance of the Note Policy) shall have been
concurrently satisfied.

          Section 3.02   PAYMENT OF FEES AND PREMIUM.

          (a)  LEGAL FEES.  On the Closing Date, Arcadia Financial shall pay or
cause to be paid legal fees and disbursements incurred by Financial Security in
connection with the issuance of the Note Policy up to an amount not to exceed
$20,000.00, plus disbursements.

          (b)  RATING AGENCY FEES.  The initial fees of S&P and Moody's with
respect to the Notes and the Transaction shall be paid by Arcadia Financial in
full on the Closing Date.  All periodic and subsequent fees of S&P or Moody's
with respect to, and directly allocable to, the Notes shall be for the account
of, shall be billed to, and shall be paid by Arcadia Financial.  The fees for
any other rating agency shall be paid by the party requesting such other
agency's rating, unless such other agency is a substitute for S&P or Moody's in
the event that S&P or Moody's is 


                                      40
<PAGE>

no longer rating the Notes, in which case the cost for such agency shall be 
paid by Arcadia Financial.

          (c)  AUDITORS' FEES.  In the event that Financial Security's auditors
are required to provide information or any consent in connection with the
Registration Statement fees therefor shall be paid by Arcadia Financial.  Any
additional fees incurred by Financial Security after the Closing Date in respect
of any additional consents shall be paid by Arcadia Financial on demand.

          (d)  PREMIUM.  In consideration of the issuance by Financial Security
of the Note Policy, Arcadia Financial shall pay Financial Security the Premium
and Premium Supplement, if any, as and when due in accordance with the terms of
the Premium Letter.  The Premium and Premium Supplement, if any, paid hereunder
or under the Sale and Servicing Agreement shall be nonrefundable without regard
to whether Financial Security makes any payment under the Note Policy or any
other circumstances relating to the Notes or provision being made for payment of
the Notes prior to maturity.  Although the Premium is fully earned by Financial
Security as of the Closing Date, the Premium shall be payable in periodic
installments as provided in the Premium Letter.  Anything herein or in any of
the Transaction Documents notwithstanding, upon the occurrence of an Event of
Default, the entire outstanding balance of further installments of the Premium
and Premium Supplement shall be immediately due and payable.  All payments of
Premium and Premium Supplement, if any, shall be made by wire transfer to an
account designated from time to time by Financial Security by written notice to
the Seller and Arcadia Financial.

          Section 3.03   REIMBURSEMENT AND ADDITIONAL PAYMENT OBLIGATION.  Each
of Arcadia Financial and the Trust agrees to pay to Financial Security as
follows:

          (a)  a sum equal to the total of all amounts paid by Financial
Security under the Note Policy;

          (b)  any and all charges, fees, costs and expenses which Financial
Security may reasonably pay or incur, including, but not limited to, attorneys'
and accountants' fees and expenses, in connection with (i) any accounts
established to facilitate payments under the Note Policy to the extent Financial
Security has not been immediately reimbursed on the date that any amount is paid
by Financial Security under the Note Policy, (ii) the administration,
enforcement, defense or preservation of any rights in respect of any of the
Transaction Documents, including defending, monitoring or participating in any
litigation, proceeding (including any insolvency or bankruptcy proceeding in
respect of any Transaction participant or any Affiliate thereof), restructuring
or engaging in any protective measures or monitoring activities relating to any
of the Transaction Documents, any party to any of the Transaction Documents or
the Transaction, (iii) the foreclosure against, sale or other disposition of
any collateral securing any obligations under any of the Transaction Documents
or otherwise in the discretion of Financial Security, or pursuit of any other
remedies under any of the Transaction Documents, to the extent such costs and
expenses are not recovered from such foreclosure, sale or other disposition,
(iv) any amendment, waiver or other action with respect to, or related to, any
Transaction Document whether or not executed or completed, (v) preparation of 
bound volumes of the Transaction 

                                      41
<PAGE>

Documents, (vi) any review or investigation made by Financial Security in 
those circumstances where its approval or consent is sought under any of the 
Transaction Documents, (vii) any federal, state or local tax (other than 
taxes payable in respect of the gross income of Financial Security) or other 
governmental charge imposed in connection with the issuance of the Note 
Policy, and (viii) Financial Security reserves the right to charge a 
reasonable fee as a condition to executing any amendment, waiver or consent 
proposed in respect of any of the Transaction Documents (for the purpose of 
this paragraph (b), costs and expenses shall include a reasonable allocation 
of compensation and overhead attributable to time of employees of Financial 
Security spent in connection with the actions described in the foregoing 
clauses (ii) and (iii));

          (c)  interest on any and all amounts described in this Section 3.03
from the date payable to or paid by Financial Security until payment thereof in
full, and interest on any and all amounts described in Section 3.02, in each
case payable to Financial Security at the Late Payment Rate per annum; and

          (d)  any payments made by Financial Security on behalf of, or advanced
to, the Seller, Arcadia Financial, the Indenture Trustee, the Owner Trustee or
the Trust including, without limitation, any amounts payable by Arcadia
Financial in its capacity as Servicer or by the Trust, in respect of the Notes
and any other amounts owed pursuant to any Transaction Documents; and any
payments made by Financial Security as, or in lieu of, any servicing,
administration, management, trustee, custodial, collateral agency or
administrative fees payable, in the sole discretion of Financial Security to
third parties in connection with the Transaction.

          All such amounts are to be immediately due and payable without demand.
Financial Security shall notify Arcadia Financial of amounts due hereunder.

          Section 3.04   CERTAIN OBLIGATIONS NOT RECOURSE TO ARCADIA FINANCIAL;
RECOURSE TO TRUST PROPERTY.

          (a)  Notwithstanding any provision of Section 3.03 to the contrary,
the payment obligations provided in Section 3.03(a), b (iii) and (d) (to the
extent of advances to the Trust or to the Indenture Trustee in respect of
payments on the Notes), in each case, to the extent that such payment
obligations do not arise from any failure or default in the performance by
Arcadia Financial or the Seller of any of its obligations under the Transaction
Documents, and any interest on the foregoing in accordance with Section 3.03(c),
shall not be recourse to Arcadia Financial, but shall be payable in the manner
and in accordance with priorities provided in the Sale and Servicing Agreement.

          (b)  Financial Security covenants and agrees that it shall not be
entitled to any payment from the Trust Property with respect to amounts owed
under this Agreement other than as set forth in Section 4.6 and Section 9.1 of
the Sale and Servicing Agreement and Section 5.06 of the Indenture.


                                      42
<PAGE>

          Section 3.05   INDEMNIFICATION.

          (a)  INDEMNIFICATION BY ARCADIA FINANCIAL.  In addition to any and all
rights of reimbursement, indemnification, subrogation and any other rights
pursuant hereto or under law or in equity, Arcadia Financial agrees to pay, and
to protect, indemnify and save harmless, Financial Security and its officers,
directors, shareholders, employees, agents and each Person, if any, who controls
Financial Security within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act from and against any and all claims, losses,
liabilities (including penalties), actions, suits, judgments, demands, damages,
costs or expenses (including, without limitation, fees and expenses of
attorneys, consultants and auditors and reasonable costs of investigations) of
any nature arising out of or relating to the Transaction by reason of:

                 (i)     any statement, omission or action (other than of or by
     Financial Security) in connection with the offering, issuance, sale or
     delivery of the Notes;

                 (ii)    the negligence, bad faith, willful misconduct,
     misfeasance malfeasance or theft committed by any director, officer,
     employee or agent of the Trust the Seller or Arcadia Financial in
     connection with the Transaction;

                 (iii)   the violation by the Trust, the Seller or Arcadia
     Financial of any federal, state or foreign law, rule or regulation, or any
     judgment, order or decree applicable to it;

                 (iv)    the breach by the Trust, the Seller or Arcadia
     Financial of any representation, warranty or covenant under any of the
     Transaction Documents or the occurrence, in respect of the Trust, the
     Seller or Arcadia Financial, under any of the Transaction Documents of any
     event of default or any event which, with the giving of notice or the lapse
     of time or both, would constitute any event of default; or

                 (v)     any untrue statement or alleged untrue statement of a
     material fact contained in the Registration Statement or the Prospectus or
     in any amendment or supplement thereto or any omission or alleged omission
     to state therein a material fact required to be stated therein or necessary
     to make the statements therein not misleading, except insofar as such
     claims arise out of or are based upon any untrue statement or omission
     (A) included in the Registration Statement or the Prospectus and furnished
     by Financial Security in writing expressly for use therein (all such
     information so furnished being referred to herein as "Financial Security
     Information"), it being understood that the Financial Security Information
     is limited to the information included under the caption "Financial
     Security Assurance Inc.," and the financial statements of Financial
     Security included in the Registration Statement or the Prospectus or
     (B) included in the information set forth under the caption "Underwriting"
     in the Prospectus.

          (b)  CONDUCT OF ACTIONS OR PROCEEDINGS.  If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
Financial Security, any officer, director, shareholder, employee or agent of
Financial Security or any Person controlling Financial Security (individually,
an "Indemnified Party" and, collectively, the "Indemnified 


                                      43
<PAGE>

Parties") in respect of which indemnity may be sought from Arcadia Financial 
hereunder, Financial Security shall promptly notify Arcadia Financial in 
writing, and Arcadia Financial shall assume the defense thereof, including 
the employment of counsel satisfactory to Financial Security and the payment 
of all expenses.  The Indemnified Party shall have the right to employ 
separate counsel in any such action and to participate in the defense thereof 
at the expense of the Indemnified Party; PROVIDED, HOWEVER, that the fees and 
expenses of such separate counsel shall be at the expense of Arcadia 
Financial if (i) Arcadia Financial has agreed to pay such fees and expenses, 
(ii) Arcadia Financial shall have failed to assume the defense of such 
action or proceeding and employ counsel satisfactory to Financial Security in 
any such action or proceeding or (iii) the named parties to any such action 
or proceeding (including any impleaded parties) include both the Indemnified 
Party and the Trust, the Seller or Arcadia Financial, and the Indemnified 
Party shall have been advised by counsel that there may be one or more legal 
defenses available to it which are different from or additional to those 
available to the Trust, the Seller or Arcadia Financial (in which case, if 
the Indemnified Party notifies Arcadia Financial in writing that it elects to 
employ separate counsel at the expense of Arcadia Financial, Arcadia 
Financial shall not have the right to assume the defense of such action or 
proceeding on behalf of such Indemnified Party, it being understood, however, 
that Arcadia Financial shall not, in connection with any one such action or 
proceeding or separate but substantially similar or related actions or 
proceedings in the same jurisdiction arising out of the same general 
allegations or circumstances, be liable for the reasonable fees and expenses 
of more than one separate form of attorneys at any time for the Indemnified 
Parties, which firm shall be designated in writing by Financial Security).  
Arcadia Financial shall not be liable for any settlement of any such action 
or proceeding effected without its written consent to the extent that any 
such settlement shall be prejudicial to it, but, if settled with its written 
consent, or if there be a final judgment for the plaintiff in any such action 
or proceeding with respect to which Arcadia Financial shall have received 
notice in accordance with this subsection (c) Arcadia Financial agrees to 
indemnify and hold the Indemnified Parties harmless from and against any loss 
or liability by reason of such settlement or judgment.

          (c)  CONTRIBUTION.  To provide for just and equitable contribution if
the indemnification provided by Arcadia Financial is determined to be
unavailable for any Indemnified Party (other than due to application of this
Section), Arcadia Financial shall contribute to the losses incurred by the
Indemnified Party on the basis of the relative fault of Arcadia Financial, on
the one hand, and the Indemnified Party, on the other hand.

          Section 3.06   PAYMENT PROCEDURE.  In the event of the incurrence by
Financial Security of any cost or expense or any payment by Financial Security
for which it is entitled to be reimbursed or indemnified as provided above
Arcadia Financial agrees to accept the voucher or other evidence of payment as
prima facie evidence of the propriety thereof and the liability therefor to
Financial Security.  All payments to be made to Financial Security under this
Agreement shall be made to Financial Security in lawful currency of the United
States of America in immediately available funds to the account number provided
in the Premium Letter before 1:00 p.m. (New York, New York time) on the date
when due or as Financial Security shall otherwise direct by written notice to
Arcadia Financial.  In the event that the date of any payment to Financial
Security or the expiration of any time period hereunder occurs on a day which is
not 


                                      44
<PAGE>

a Business Day, then such payment or expiration of time period shall be made 
or occur on the next succeeding Business Day with the same force and effect 
as if such payment was made or time period expired on the scheduled date of 
payment or expiration date.  Payments to be made to Financial Security under 
this Agreement shall bear interest at the Late Payment Rate from the date 
when due to the date paid.

          Section 3.07  SUBROGATION.  Subject only to the priority of 
payment provisions of the Sale and Servicing Agreement, each of the Trust, 
the Indenture Trustee, the Seller and Arcadia Financial acknowledges that, to 
the extent of any payment made by Financial Security pursuant to the Note 
Policy, Financial Security is to be fully subrogated to the extent of such 
payment and any additional interest due on any late payment, to the rights of 
the Noteholders to any moneys paid or payable in respect of the Notes under 
the Transaction Documents or otherwise.  Each of the Trust, the Indenture 
Trustee, the Seller and Arcadia Financial agrees to such subrogation and, 
further, agrees to execute such instruments and to take such actions as, in 
the sole judgment of Financial Security, are necessary to evidence such 
subrogation and to perfect the rights of Financial Security to receive any 
such moneys paid or payable in respect of the Notes under the Transaction 
Documents or otherwise.

                                    ARTICLE IV.
                                          
                         FURTHER AGREEMENTS; MISCELLANEOUS

          Section 4.01  EFFECTIVE DATE: TERM OF AGREEMENT.  This Agreement 
shall take effect on the Closing Date and shall remain in effect until the 
later of (a) such time as Financial Security is no longer subject to a claim 
under the Note Policy and the Note Policy shall have been surrendered to 
Financial Security for cancellation and (b) all amounts payable to Financial 
Security and the Noteholders under the Transaction Documents and under the 
Notes have been paid in full; PROVIDED, HOWEVER, that the provisions of 
Sections 3.02, 3.03, 3.04, 3.05, 3.06 and 4.03 hereof shall survive any 
termination of this Agreement.

          Section 4.02   FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS.  To 
the extent permitted by law, each of the Trust, the Seller and Arcadia 
Financial agree that it will, from time to time, execute, acknowledge and 
deliver, or cause to be executed, acknowledged and delivered, such 
supplements hereto and such further instruments as Financial Security may 
request and as may be required in Financial Security's judgment to effectuate 
the intention of or facilitate the performance of this Agreement.

          Section 4.03  OBLIGATIONS ABSOLUTE.

          (a)  The obligations of the Trust, the Seller and Arcadia Financial 
hereunder shall be absolute and unconditional, and shall be paid or performed 
strictly in accordance with this Agreement under all circumstances 
irrespective of:

                                       45
<PAGE>

               (i)    any lack of validity or enforceability of, or any
     amendment or other modifications of, or waiver with respect to any of the
     Transaction Documents, the Notes or the Note Policy; PROVIDED, that
     Financial Security shall not have consented to any such amendment,
     modification or waiver;

               (ii)   any exchange or release of any other obligations
     hereunder;

               (iii)  the existence of any claim, setoff, defense, reduction,
     abatement or other right which the Trust, the Seller or Arcadia Financial
     may have at any time against Financial Security or any other Person;

               (iv)   any document presented in connection with the Note
     Policy proving to be forged, fraudulent, invalid or insufficient in any
     respect or any statement therein being untrue or inaccurate in any respect;

               (v)    any payment by Financial Security under the Note Policy
     against presentation of a certificate or other document which does not
     strictly comply with terms of the Note Policy;

               (vi)   any failure of the Seller or the Trust to receive the
     proceeds from the Sale of the Notes;

               (vii)  any breach by the Trust, the Seller or Arcadia
     Financial of any representation, warranty or covenant contained in any of
     the Transaction Documents; or

               (viii) any other circumstances, other than payment in full,
     which might otherwise constitute a defense available to, or discharge of,
     the Trust, the Seller or Arcadia Financial in respect of any Transaction
     Document.

          (b)  The Trust, the Seller and Arcadia Financial and any and all 
others who are now or may become liable for all or part of the obligations of 
any of them under this Agreement agree to be bound by this Agreement and (i)  
to the extent permitted by law, waive and renounce any and all redemption and 
exemption rights and the benefit of all valuation and appraisement privileges 
against the indebtedness and obligations evidenced by any Transaction 
Document or by any extension or renewal thereof; (ii) waive presentment and 
demand for payment, notices of nonpayment and of dishonor, protest of 
dishonor and notice of protest; (iii) waive all notices in connection with 
the delivery and acceptance hereof and all other notices in connection with 
the performance, default or enforcement of any payment hereunder except as 
required by the Transaction Documents other than this Agreement; (iv) waive 
all rights of abatement, diminution, postponement or deduction, or to any 
defense other than payment, or to any right of setoff or recoupment arising 
out of any breach under any of the Transaction Documents, by any party 
thereto or any beneficiary thereof, or out of any obligation at any time 
owing to the Trust, the Seller or Arcadia Financial; (v) agree that its 
liabilities hereunder shall, except as otherwise expressly provided in this 
Section 4.03, be unconditional and without regard to any setoff, counterclaim 
or the liability of any other Person for the payment hereof; (vi) agree that 
any consent, waiver or forbearance hereunder with respect to an event shall 
operate only for such 

                                       46
<PAGE>

event and not for any subsequent event; (vii) consent to any and all 
extensions of time that may be granted by Financial Security with respect to 
any payment hereunder or other provisions hereof and to the release of any 
security at any time given for any payment hereunder, or any part thereof, 
with or without substitution, and to the release of any Person or entity 
liable for any such payment; and (viii) consent to the addition of any and 
all other makers, endorsers, guarantors and other obligors for any payment 
hereunder, and to the acceptance of any and all other security for any 
payment hereunder, and agree that the addition of any such obligors or 
security shall not affect the liability of the parties hereto for any payment 
hereunder.

          (c)  Nothing herein shall be construed as prohibiting the Trust, 
Seller or Arcadia Financial from pursuing any rights or remedies it may have 
against any other Person in a separate legal proceeding.

          Section 4.04  ASSIGNMENTS; REINSURANCE; THIRD-PARTY RIGHTS.

          (a)  This Agreement shall be a continuing obligation of the parties 
hereto and shall be binding upon and inure to the benefit of the parties 
hereto and their respective successors and permitted assigns.  Neither the 
Trust, the Seller nor Arcadia Financial may assign its rights under this 
Agreement, or delegate any of its duties hereunder, without the prior written 
consent of Financial Security.  Any assignment made in violation of this 
Agreement shall be null and void.

          (b)  Financial Security shall have the right to give participations 
in its rights under this Agreement and to enter into contracts of reinsurance 
with respect to the Note Policy upon such terms and conditions as Financial 
Security may in its discretion determine; PROVIDED, HOWEVER, that no such 
participation or reinsurance agreement or arrangement shall relieve Financial 
Security of any of its obligations hereunder or under the Note Policy.

          (c)  In addition, Financial Security shall be entitled to assign or 
pledge to any bank or other lender providing liquidity or credit with respect 
to the Transaction or the obligations of Financial Security in connection 
therewith any rights of Financial Security under the Transaction Documents or 
with respect to any real or personal property or other interests pledged to 
Financial Security, or in which Financial Security has a security interest, 
in connection with the Transaction.

          (d)  Except as provided herein with respect to participants and 
reinsurers, nothing in this Agreement shall confer any right, remedy or 
claim, express or implied, upon any Person, including, particularly, any 
Noteholder (except to the extent provided herein and without limitation of 
their rights to receive payments with respect to the Trust Property, 
including without limitation payments under the Note Policy), other than 
Financial Security, against the Trust, the Seller, Arcadia Financial or the 
Servicer, and all the terms, covenants, conditions, promises and agreements 
contained herein shall be for the sole and exclusive benefit of the parties 
hereto and their successors and permitted assigns. Neither the Trustee, the 
Owner Trustee nor any Noteholder shall have any right to payment from any 
premiums paid or payable hereunder or from any other amounts paid by the 
Seller or Arcadia Financial pursuant to Section 

                                       47
<PAGE>

3.02, 3.03 or 3.04 hereof (without limitation to the rights of the 
Noteholders to receive payments with respect to the Trust Property, as 
provided in the Indenture and the Trust Agreement).

          Section 4.05  LIABILITY OF FINANCIAL SECURITY.  Neither Financial 
Security nor any of its officers, directors or employees shall be liable or 
responsible for: (a) the use which may be made of the Note Policy by the 
Owner Trustee or the Indenture Trustee or for any acts or omissions of the 
Owner Trustee or the Indenture Trustee in connection therewith; or (b) the 
validity, sufficiency, accuracy or genuineness of documents delivered to 
Financial Security (or its Fiscal Agent) in connection with any claim under 
the Note Policy, or of any signatures thereon, even if such documents or 
signatures should in fact prove to be in any or all respects invalid, 
insufficient, fraudulent or forged (unless Financial Security shall have 
actual knowledge thereof). In furtherance and not in limitation of the 
foregoing, Financial Security (or its Fiscal Agent) may accept documents that 
appear on their face to be in order, without responsibility for further 
investigation.

                                     ARTICLE V.
                                          
                            EVENTS OF DEFAULT; REMEDIES

          Section 5.01  EVENTS OF DEFAULT.  The occurrence of any of the 
following events shall constitute an Event of Default hereunder:

          (a)  any demand for payment shall be made under the Note Policy;

          (b)  any representation or warranty made by the Trust, the Seller, 
Arcadia Financial or the Servicer under any of the Related Documents, or in 
any certificate or report furnished under any of the Related Documents, shall 
prove to be untrue or incorrect in any material respect;

          (c)  (i)  the Trust, the Seller, Arcadia Financial or the 
Servicer shall fail to pay, when due, any amount payable by the Seller, 
Arcadia Financial or the Servicer under any of the Related Documents (other 
than payments of principal and interest on the Notes); (ii) the Trust, the 
Seller, Arcadia Financial or the Servicer shall have asserted that any of the 
Transaction Documents to which it is a party is not valid and binding on the 
parties thereto; or (iii) any court, governmental authority or agency having 
jurisdiction over any of the parties to any of the Transaction Documents or 
property thereof shall find or rule that any material provision of any of the 
Transaction Documents is not valid and binding on the parties thereto;

          (d)  the Trust, the Seller, Arcadia Financial or the Servicer shall 
fail to perform or observe any other covenant or agreement contained in any 
of the Related Documents (except for the obligations described under clause 
(b) or (c) above) and such failure shall continue for a period of 30 days 
after written notice given to the Trust, the Seller, Arcadia Financial or the 
Servicer (as applicable); PROVIDED that, if such failure shall be of a nature 
that it cannot be cured within 30 days, such failure shall not constitute an 
Event of Default hereunder if within such 30

                                       48
<PAGE>

day period such party shall have given notice to Financial Security of 
corrective action it proposes to take, which corrective action is agreed in 
writing by Financial Security to be satisfactory and such party shall 
thereafter pursue such corrective action diligently until such default is 
cured;

          (e)  there shall have occurred an "Event of Default" as specified 
in Section 701(i) or 701(ii) of the Senior Note Indenture or any Supplemental 
Indenture thereto or the unpaid principal amount of, premium, if any, and 
accrued and unpaid interest on the Securities (as defined in the Senior Note 
Indenture) shall have, upon the declaration of the holders of the Securities, 
as specified in Section 702 of the Senior Note Indenture, become immediately 
due and payable;

          (f)  the Trust shall adopt a voluntary plan of liquidation or shall 
fail to pay its debts generally as they come due, or shall admit in writing 
its inability to pay its debts generally, or shall make a general assignment 
for the benefit of creditors, or shall institute any proceeding seeking to 
adjudicate the Trust insolvent or seeking a liquidation, or shall take 
advantage of any insolvency act, or shall commence a case or other proceeding 
naming the Trust as debtor under the United States Bankruptcy Code or similar 
law, domestic or foreign, or a case or other proceeding shall be commenced 
against the Trust under the United States Bankruptcy Code or similar law, 
domestic or foreign, or any proceeding shall be instituted against the Trust 
seeking liquidation of its assets and the Trust shall fail to take 
appropriate action resulting in the withdrawal or dismissal of such 
proceeding within 30 days or there shall be appointed or the Trust consent 
to, or acquiesce in, the appointment of a receiver, liquidator, conservator, 
trustee or similar official in respect of the Trust or the whole or any 
substantial part of its properties or assets, or the Trust shall take any 
corporate action in furtherance of any of the foregoing or the Trust 
terminates pursuant to Section 9.1 of the Trust Agreement;

          (g)  the Trust becomes taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax purposes;

          (h)  on any Distribution Date, the sum of Available Funds with respect
to such Distribution Date and the amounts available in the Series 1999-A Spread
Account (prior to any deposits into such Spread Account from Spread Accounts
related to any other Series) and the amount that may be withdrawn from the
Reserve Account pursuant to Section 5.1 of the Sale and Servicing Agreement is
less than the sum of the amounts payable on such Distribution Date pursuant to
clauses (i) through (viii) of Section 4.6 of the Sale and Servicing Agreement;

          (i)  any default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture (other than a default in the
payment of the interest or principal on any Note when due) or any representation
or warranty of the Trust made in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith proving to have
been incorrect in any material respect as of the time when the same shall have
been made, and such default shall continue or not be cured, or the circumstance
or condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a period of 30
days after there shall have been given, by


                                       49
<PAGE>

registered or certified mail, to the Trust and the Indenture Trustee by 
Financial Security, a written notice specifying such default or incorrect 
representation or warranty and requiring it to be remedied;

          (j)  the Average Delinquency Ratio with respect to any 
Determination Date shall have been equal to or greater than 9.08%;

          (k)  with respect to any Determination Date, the Cumulative Default 
Rate shall be equal to or greater than the percentage set forth in Column A 
of Schedule I attached hereto corresponding to such Determination Date;

          (l)  with respect to any Determination Date, the Cumulative Net 
Loss Rate shall be equal to or greater than the percentage set forth in 
Column B of Schedule I attached hereto corresponding to such Determination 
Date;

          (m)  the occurrence of an Event of Servicing Termination under the 
Sale and Servicing Agreement; or

          (n)  the occurrence of an "Event of Default" under and as defined 
in any Insurance and Indemnity Agreement among Financial Security, Arcadia 
Financial, the Seller and any other parties thereto, which "Event of Default" 
is not defined as a "Portfolio Performance Event of Default" in such 
Insurance and Indemnity Agreement.

          Section 5.02  REMEDIES; WAIVERS.

          (a)  Upon the occurrence of an Event of Default, Financial Security
may exercise any one or more of the rights and remedies set forth below:

               (i)    declare the Premium Supplement to be immediately due
     and payable, and the same shall thereupon be immediately due and payable,
     whether or not Financial Security shall have declared an "Event of Default"
     or shall have exercised, or be entitled to exercise, any other rights or
     remedies hereunder;

               (ii)   exercise any rights and remedies available under the
     Transaction Documents in its own capacity or in its capacity as the Person
     entitled to exercise the rights of Controlling Party under the Transaction
     Documents; or

               (iii)  take whatever action at law or in equity as may appear
     necessary or desirable in its judgment to enforce performance of any
     obligation of the Trust, the Seller or Arcadia Financial under the
     Transaction Documents; PROVIDED, HOWEVER, that Financial Security shall not
     be entitled hereunder to file any petition with respect to the Trust or the
     Trust Property under any bankruptcy or insolvency law.

          (b)  Unless otherwise expressly provided, no remedy herein 
conferred upon or reserved is intended to be exclusive of any other available 
remedy, but each remedy shall be cumulative and shall be in addition to other 
remedies given under the Transaction Documents or 

                                       50
<PAGE>

existing at law or in equity.  No delay or failure to exercise any right or 
power accruing under any Transaction Document upon the occurrence of any 
Event of Default or otherwise shall impair any such right or power or shall 
be construed to be a waiver thereof, but any such right and power may be 
exercised from time to time and as often as may be deemed expedient.  In 
order to entitle Financial Security to exercise any remedy reserved to 
Financial Security in this Article, it shall not be necessary to give any 
notice.

          (c)  If any proceeding has been commenced to enforce any right or 
remedy under this Agreement, and such proceeding has been discontinued or 
abandoned for any reason, or has been determined adversely to Financial 
Security, then and in every such case the parties hereto shall, subject to 
any determination in such proceeding, be restored to their respective former 
positions hereunder, and, thereafter, all rights and remedies of Financial 
Security shall continue as though no such proceeding had been instituted.

          (d)  Financial Security shall have the right, to be exercised in 
its complete discretion, to waive any covenant, Default or Event of Default 
by a writing setting forth the terms, conditions and extent of such waiver 
signed by Financial Security and delivered to the Seller and Arcadia 
Financial.  Any such waiver may only be effected in writing duly executed by 
Financial Security, and no other course of conduct shall constitute a waiver 
of any provision hereof. Unless such writing expressly provides to the 
contrary, any waiver so granted shall extend only to the specific event or 
occurrence so waived and not to any other similar event or occurrence which 
occurs subsequent to the date of such waiver.

                                    ARTICLE VI.

                                   MISCELLANEOUS

          Section 6.01  AMENDMENTS, ETC.  This Agreement may be amended, 
modified or terminated only by written instrument or written instruments 
signed by the parties hereto.  No act or course of dealing shall be deemed to 
constitute an amendment, modification or termination hereof.

          Section 6.02  NOTICES.  All demands, notices and other 
communications to be given hereunder shall be in writing (except as otherwise 
specifically provided herein) and shall be mailed by registered mail or 
overnight carrier, personally delivered or telecopied (with confirmation by 
registered mail) to the recipient as follows:

                                       51
<PAGE>

          (a)       To Financial Security:

               Financial Security Assurance Inc.
               350 Park Avenue
               New York, New York 10022
               Attention:  Transaction Oversight
               Confirmation:  (212) 826-0100
               Telecopy Nos.: (212) 339-3518
                              (212) 339-3529

               (in each case in which notice or other communication to Financial
               Security refers to an Event of Default, a claim on the Note
               Policy or with respect to which failure on the part of Financial
               Security to respond shall be deemed to constitute consent or
               acceptance, then a copy of such notice or other communication
               should also be sent to the attention of each of the General
               Counsel and the Head - Financial Guaranty Group and shall be
               marked to indicate "URGENT MATERIAL ENCLOSED").

          (b)       To the Seller:

               Arcadia Receivables Finance Corp.
               7825 Washington Avenue South, Suite 410
               Minneapolis, Minnesota 55439-2435
               Telephone:     (612) 942-9888
               Telecopier:    (612) 942-6730
          
          (c)       To Arcadia Financial:

               Arcadia Financial Ltd.
               7825 Washington Avenue South
               Minneapolis, Minnesota 55439-2435
               Telephone:     (612) 942-9880
               Telecopier:    (612) 942-6730

          (d)       To the Trust:

               Arcadia Automobile Receivables Trust, 1999-A
               c/o Wilmington Trust Company,
                  as Owner Trustee
               Rodney Square North, 1100 North Market Street 
               Wilmington, Delaware 19890
               Attention:  Corporate Trust Administration
               Telephone:     (302) 651-1000
               Telecopier:    (302) 651-8882

                                       52
<PAGE>


               with a copy to:

               Wilmington Trust Company, as Owner Trustee
               Rodney Square North, 1100 North Market Street 
               Wilmington, Delaware 19890

          A party may specify an additional or different address or addresses 
by writing mailed or delivered to the other party as aforesaid.  All such 
notices and other communications shall be effective upon receipt.

          Section 6.03  SEVERABILITY.  In the event that any provision of 
this Agreement shall be held invalid or unenforceable by any court of 
competent jurisdiction, the parties hereto agree that such holding shall not 
invalidate or render unenforceable any other provision hereof.  The parties 
hereto further agree that the holding by any court of competent jurisdiction 
that any remedy pursued by any party hereto is unavailable or unenforceable 
shall not affect in any way the ability of such party to pursue any other 
remedy available to it.

          Section 6.04  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY 
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

          Section 6.05  CONSENT TO JURISDICTION.

          (a)  TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
THERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE
OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR
IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR
IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY
SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. 
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND
AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THE RELATED DOCUMENTS OR

                                       53
<PAGE>

THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.

          (b)  To the extent permitted by applicable law, the parties hereto 
shall not seek and hereby waive the right to any review of the judgment of 
any such court by any court of any other nation or jurisdiction which may be 
called upon to grant an enforcement of such judgment.

          (c)  Arcadia Financial and the Seller hereby irrevocably appoints 
and designates CT Corporation System, whose address is 1633 Broadway, New 
York, New York 10019, as its true and lawful attorney and duly authorized 
agent for acceptance of service of legal process.  The Seller and Arcadia 
Financial agrees that service of such process upon such Person shall 
constitute personal service of such process upon it.

          (d)  Nothing contained in the Agreement shall limit or affect 
Financial Security's right to serve process in any other manner permitted by 
law or to start legal proceedings relating to any of the Transaction 
Documents against the Seller or Arcadia Financial or its property in the 
courts of any jurisdiction.

          Section 6.06   CONSENT OF FINANCIAL SECURITY.  In the event that 
Financial Security's consent is required under any of the Transaction 
Documents, the determination whether to grant or withhold such consent shall 
be made by Financial Security in its sole discretion without any implied duty 
towards any other Person, except as otherwise expressly provided therein.

          Section 6.07  COUNTERPARTS.  This Agreement may be executed in 
counterparts by the parties hereto, and all such counterparts shall 
constitute one and the same instrument.

          Section 6.08  HEADINGS.  The headings of articles and sections and 
the table of contents contained in this Agreement are provided for 
convenience only.  They form no part of this Agreement and shall not affect 
its construction or interpretation.  Unless otherwise indicated, all 
references to articles and sections in this Agreement refer to the 
corresponding articles and sections of this Agreement.

          Section 6.09  TRIAL BY JURY WAIVED.  EACH PARTY HERETO HEREBY 
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY 
IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR 
IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION.  EACH 
PARTY HERETO (A) CERTIFIES THAI NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY 
PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN 
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) 
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS 
TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.

                                       54
<PAGE>

          Section 6.10  LIMITED LIABILITY.  No recourse under any Transaction
Document shall be had against, and no personal liability shall attach to, any
officer, employee, director, affiliate or shareholder of any party hereto, as
such, by the enforcement of any assessment or by any legal or equitable
proceeding, by virtue of any statute or otherwise in respect of any of the
Transaction Documents, the Notes or the Note Policy, it being expressly agreed
and understood that each Transaction Document is solely a corporate obligation
of each party hereto, and that any and all personal liability, either at common
law or in equity, or by statute or constitution, of every such officer,
employee, director, affiliate or shareholder for breaches by any party hereto of
any obligations under any Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Agreement.

          Section 6.11  LIMITED LIABILITY OF WILMINGTON TRUST COMPANY.  It is 
expressly understood and agreed by the parties hereto that (a) this Agreement 
is executed and delivered by Wilmington Trust Company, not individually or 
personally but solely as Owner Trustee on behalf of the Trust, (b) each of 
the representations, undertakings and agreements herein made on the part of 
the Trust is made and intended not as personal representations, undertakings 
and agreements by Wilmington Trust Company, but are made and intended for the 
purpose of binding only the Trust Estate, (c) nothing herein contained shall 
be construed as creating any liability on Wilmington Trust Company, 
individually or personally, to perform any covenant of the Trust either 
expressed or implied contained herein, all such liability, if any, being 
expressly waived by the parties hereto and by any person claiming by, through 
or under such parties and (d) under no circumstances shall Wilmington Trust 
Company be personally liable for the payment of any indebtedness or expenses 
of the Trust or be liable for the breach or failure of any obligation, 
representation, warranty or covenant made or undertaken by the Trust under 
this Agreement.

          Section 6.12  ENTIRE AGREEMENT.  This Agreement and the Note Policy 
set forth the entire agreement between the parties with respect to the 
subject matter thereof, and this Agreement supersedes and replaces any 
agreement or understanding that may have existed between the parties prior to 
the date hereof in respect of such subject matter.

                                       55
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Insurance and Indemnity Agreement, all as of the day and year
first above written.

                                       FINANCIAL SECURITY ASSURANCE INC.

                                       By:       /s/ DAN FARRELL     
                                           -----------------------------------
                                             Authorized Officer

                                       ARCADIA AUTOMOBILE RECEIVABLES 
                                          TRUST, 1999-A

                                       By:  Wilmington Trust Company, as Owner
                                            Trustee under the Trust Agreement

                                       By:       /s/ THOMAS P. LASKARIS   
                                           -----------------------------------



                                       ARCADIA FINANCIAL LTD.

                                       By:       /s/ JOHN A WITHAM   
                                           -----------------------------------
                                           Name:   John A. Witham
                                           Title:  Executive Vice President and
                                                   Chief Financial Officer


                                       ARCADIA RECEIVABLES FINANCE CORP.

                                       By:       /s/ JOHN A WITHAM   
                                           -----------------------------------
                                           Name:   John A. Witham
                                           Title:  Senior Vice President and
                                                   Chief Financial Officer
<PAGE>

                                                                     SCHEDULE I

<TABLE>
<CAPTION>
    Determination Date*     Cumulative Default Rate    Cumulative Net Loss Rate
          (month)                  (Column A)                 (Column B)
    <S>                     <C>                        <C>
           .0 to 3                    2.66%                      1.33%
            3 to 6                    5.32%                      2.66%
            6 to 9                    7.71%                      3.85%
           9 to 12                    9.84%                      4.92%
          12 to 15                   12.68%                      6.34%
          15 to 18                   15.25%                      7.63%
          18 to 21                   17.50%                      8.75%
          21 to 24                   19.45%                      9.73%
          24 to 27                   20.47%                     10.24%
          27 to 30                   21.29%                     10.65%
          30 to 33                   22.01%                     11.01%
          33 to 36                   22.63%                     11.32%
          36 to 39                   22.93%                     11.47%
          39 to 42                   23.16%                     11.58%
          42 to 45                   23.36%                     11.68%
          45 to 48                   23.52%                     11.76%
          48 to 51                   23.65%                     11.83%
          51 to 54                   23.76%                     11.88%
          54 to 57                   23.84%                     11.92%
          57 to 60                   23.91%                     11.95%
          60 to 63                   23.95%                     11.97%
          63 to 66                   23.98%                     11.99%
          66 to 69                   23.99%                     12.00%
       69 and higher                 24.00%                     12.00%
</TABLE>

----------------
*    Such Determination Date occurring after the designated calendar months 
succeeding the Series 1999-A Closing Date appearing first in the column 
below, and prior to or during the designated calendar months succeeding the 
Series 1999-A Distribution Date appearing second in the column below.